Stocks’ Details

Senex Energy Limited

Increase in Sales Volume and Production: Senex Energy Limited (ASX: SXY) is engaged in the exploration and production of oil and gas. The market capitalisation of the company stood at ~$534.25 million as on 25^th January 2021.  During the quarter ended December 2020, the production at Surat Gas was up by 16% to 4.3 PJ over the previous quarter. In addition, Atlas has also seen an acceleration in operation with an increase of 31% in production. As a result of this, the company experienced a rise of 21% in sales volumes for continuing operations to 4.0 PJ over the previous quarter. Sales revenue for the quarter amounted to $27.9 million, reflecting a rise of 26% against the previous quarter. This growth was aided by higher production volume and improved realised pricing for oil-linked Roma North natural gas production. In the month of November 2020, the company announced the sale of its Cooper Basin business to Beach Energy for $87.5 million.

Key Financials (Source: Company Reports)

Outlook: Going forward, the company is working to carry out the development of its low-risk high-return organic growth opportunities in order to attain the FY25 annual production target of 60 PJ/year. The company is likely to release its 1H FY21 results on 19^th February 2021.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: The company had cash reserves of $58.0 million at the end of December 2020 quarter. The stock of SXY has moved up by 82.50% in the last nine months. Currently, the stock is inclined towards its 52-week high of $0.370.  Considering this, we have valued the stock using the price to cash flow multiple based illustrative relative valuation method and arrived at a target price with correction of low double-digit (in percentage terms). For the purpose, we have taken peers such as Beach Energy Ltd (ASX: BPT), Oil Search Ltd (ASX: OSH) and Cooper Energy Ltd (ASX: COE), to name few. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.255 and a resistance level of ~$0.426. Hence, considering the steep price movement in the past months, current trading levels, RSI levels and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $0.365 per share on 25^th January 2021.

Lithium Australia NL

Grant of European Patent: Lithium Australia NL (ASX: LIT) is involved in the exploration of lithium and other minerals. The market capitalisation of the company stood at ~$129.77 million as on 25^th January 2021. Recently, the company announced that its subsidiary VSPC Ltd has received a European patent to produce complex metal-oxide nanoparticles. This improves the company’s arsenal of intellectual property and strengthens its position as a significant supplier of innovative technology to the battery industry.  During the quarter ended 30^th September 2020, the company’s Envirostream Australia Pty Ltd has processed 80 tonnes of lithium-ion batteries. Envirostream also inked electric vehicle battery recycling agreements with two suppliers, wherein, Envirostream would be responsible for the transport of these battery packs to its premises and protection of intellectual property the discharge of any residual battery energy and pack disassembly and recycling. During the same quarter, LIT raised $8.5 million through a combination of private placement and shareholder purchase plan. The company recorded net cash outflow from operating and investing activities of $777k and $412k, respectively.

Cash Flow (Source: Company Reports)

Outlook: Looking forward, the company would continue to advance the capabilities and operations in recycling in order to strengthen the business.

Stock Recommendation: During the September 2020 quarter, the company has repaid all convertible note and closed the quarter with cash reserves of $9.2 million and nil debt. In the last six and nine months, the stock of LIT surged by 175% and 258.69%, respectively. The 52-week low-high-range for the stock stands at $0.032 - $0.210, respectively. In addition, the stock is trading at a price to book value multiple of 5.7x against the industry median (Metals & Mining) of 3.2x on TTM basis. We have also considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.0474 and a resistance level of ~$0.1986. Hence, considering the price movement in the past months, RSI levels and key risks with the business, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $0.165 per share, up by 3.125% on 25^th January 2021.

Note: Lithium Australia Ltd (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any related insights concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

AD1 Holdings Limited

Signing of Multi-year Contracts: AD1 Holdings Limited (ASX: AD1) provides an online database and search platform for e-recruitment. The market capitalisation of the company stood at ~$32.03 million as on 25^th January 2021. During the quarter ended 30^th September 2020, the company expanded its Managed Services Agreement with the Victorian Government for up to three years and inked new multi-year contracts with Powerclub and 3P Energy. The company added that Powerclub has been implemented and is generating revenue, while implementation of 3P Energy is expected to commence in the upcoming period. In addition, the company recorded positive cash flow of $184k from operating activities, which proved as a second consecutive quarter of positive cash flow. In a recent business update of its subsidiary, Art of Mentoring (AOM), which was acquired recently on 26 October 2020, the company stated that AOM has acquired 15 new clients since the start of the financial year with 8 new clients acquired since the acquisition.

Cash Flow (Source: Company Reports)

Outlook: The objective for FY21 revolves around building a strong foundation for future growth and take the business to a position of sustainable profit via accelerated revenue growth.

Stock Recommendation: As on 30^th September 2020, the cash and cash equivalents of the company stood at $613k. The stock of AD1 has moved up by 58.82% and 440% in the last six and nine months, respectively. On a TTM basis, AD1 has an EV/Sales multiple of 8.3x against the industry median (Technology) of 6.5x. In addition, the stock is trading at a price to book value multiple of 20.6x as compared to the industry median (Software & IT Services) of 6.1x on TTM basis. The stock prices are in the consolidation phase and traded in a range of $0.041 to $0.052 for the last 2 months. Although we saw some upside movement in the last trading session where prices broke the important resistance level of AUD 0.052 and managed to close above breakout level but still prices are unable to catch the sharp upside direction.

In addition, we have also considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On 25^th January 2021, the stock has touched our previously given resistance level of ~$0.056 and closed at $0.057. On a technical analysis front, the stock has a support level of ~$0.038 and a resistance level of ~$0.07. Thus, considering the price movement in the past months, RSI level, Valuation on TTM basis and key risks associated with the business, we give a “Sell” rating on the stock at the current market price of $0.057 per share, up by 7.547% on 25^th January 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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