Orbital Corporation Limited 

 
OEC Details 
 
Orbital UAV Appointed Primary Engine Supplier to Insitu Inc.: Orbital Corporation Limited (ASX: OEC) is an international developer of innovative technical solutions for a cleaner world. As on 11 March 2020, the market capitalisation of the company stood at ~$36.08 million. The company has recently signed a Memorandum of Understanding with Insitu Inc. and has become the primary supplier of two Insitu designed engines. This agreement will increase the company’s UAV’s share of Insitu designed engine orders and will provide opportunities to increase production volumes under the LTA (Long Term Agreement).  
 
The company has recently released results for the half-year ending 31 December 2019, wherein it reported an increase in revenue to $11.4 million with a loss of $2.51 million. OEC has recently appointed David Bonomini as Chief Financial Officer and Company Secretary. 
 
 
1H20 Revenue (Source: Company Reports) 
 
Growth Opportunities and Future Expectations: The company has a continued focus on deliverables within its Long-Term Agreement with Insitu Inc. It is expecting new customer opportunities and supply chain efficiency in the upcoming years. OEC has provided guidance for FY20 and expects revenue to be in the range of $25 million to $35 million.  
 
Valuation Methodology: Price to Earnings Multiple Based Relative Valuation 
 
 
Price to Earnings Multiple Based Approach (Source: Thomson Reuters) 
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 
 
Stock Recommendation: As per ASX, the stock of OEC gave a return of 47.62% in the past three months but a negative return of 15.45% in the past one month. The stock is also inclined towards its 52-weeks’ high of $0.705. During 1H20, gross margin of the company went down to 46% from 61.9% in 2H19. In the same time span, net margin and ROE witnessed a decline over the previous half. Considering the volatility in returns, current trading levels and decline in margins, we have valued the stock using price to earnings based relative valuation method and arrived at a downside of lower double-digit (in percentage terms). Hence, we recommend a “Sell” rating on the stock at the current market price of $0.520, up by 11.828% on 11 March 2020, owing to its recent release regarding the appointment as the primary supplier to Insitu.  

 
OEC Daily Technical Chart (Source: Thomson Reuters)  
 
 

Pioneer Resources Limited

PIO Details
 
Sneak Peak in PIO’s 1HFY20 Results: Pioneer Resources Limited (ASX: PIO) is engaged in the exploration and development of Lithium, nickel, cobalt and gold. PIO has released its interim results for the period ending 31 December 2019, wherein it reported sales revenue of $7,774,747, with cost of sales amounting to $4,638,286. Notably, there were no sales recorded in the comparative half-year ended 31 December 2018. Gross profit for the period stood at $3,136,461, as compared to gross loss of $22,422 in the prior corresponding period.  Net profit stood at $1,473,403, as compared to a net loss of $1,154,247 in 1HFY19. The result included exploration write-offs amounting to $7,757 as compared to $198,286 in 1HFY19. During the period, PIO completed the sale of the remaining crushed pollucite (caesium) ore. In 1HFY20, the company incurred $2,576,529 expenditure on exploration and evaluation.
 

Financial Statement (Source: Company’s Report)
 
Cash Flow & Balance Sheet Details: Cash inflow from operations stood at $4,707,203 million during the period as compared to cash outflow from operations of $4,960,892 in the previous corresponding period.The company’s cash balance at 31 December 2019 stood at $5,186,094. During the period, the company issued 1,333,600 shares as a result of the exercise of unlisted performance rights for nil consideration. As at the date of this report, the company has 1,508,758,765 fully paid ordinary shares on issue.
 
What to Expect: The company remains focused on the exploration and development of key global demand-driven commodities and has a long-term plan to build a strategy, looking for its next opportunity to create shareholders’ wealth.
 
Stock Recommendation: The stock of the company generated a negative return of ~7.69% and ~42.86% in the past 3 months and 6 months, respectively. Although the stock is currently trading towards its 52-week low of $0.010, its gross margins and EBITDA margins in 1HFY20 stands at 40.3% and 19.7%, lower than the industry median of 46.8% and 37.8%, respectively. Fears regarding the coronavirus outbreak have hit worldwide economic development. Additionally, OPEC’s failure to reach a deal with its associates regarding production cuts triggered Saudi Arabia to reduce its price. Therefore, based on above rationale, werecommend a “Sell” rating on the stock at the current market price of $0.011, down by 8.333% on 11 March 2020.
 
 
PIO Daily Technical Chart (Source: Thomson Reuters)

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