ALS Limited

ALS Details

Update on Initial Substantial Holder: ALS Limited (ASX: ALQ) is mainly involved in providing laboratory testing, inspection, certification, and verification solutions. On 19 November 2021, Mitsubishi UFJ Financial Group, Inc, became a substantial holder in the company with 24,241,703 ordinary shares, equivalent to 5.02% voting power.

H1FY22 Result Highlights:

• Increase in Revenue: For the half-year ended 30 September 2021 (H1FY22), ALQ reported total revenue of $1,031 million, up 22.9% on the previous corresponding period (pcp), driven by decent volumes in Life Sciences and Commodities division.
• Rise in Operating Cashflow: Operating cash flow H1FY22 stood at $199.3 million, up by $57.2 million compared to H1FY21.
• Improved Profitability: Statutory NPAT for H1FY22 stood at $74.1 million, up 8.7% on pcp, due to higher EBIT in the period and a reduction in interest expense following the completion of a debt refinance in H2FY21.
• Increase in Dividend: For H1FY22, the company has declared an interim dividend of 15.8 cps (30% franked), up 85.9% on pcp. The interim dividend has a record date of 3^rd December 2021, and a payment date of 17^th December 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Foreign Currency Risk: The company is exposed to the risks related to the fluctuations in foreign currency exchange rates, as it could impact its financials.
• COVID-19 Uncertainties: The COVID-19 pandemic could delay the company’s projects, which could impact its overall results.

Outlook: Looking ahead, the company is focused on maintaining a disciplined acquisition strategy focused on accretive acquisitions, primarily in food and pharmaceutical markets. For FY22, the company expects its underlying NPAT to be in the range of $242 million to $252 million. The company expects ~15% increase in Geochemistry capacity by end of FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last three months, the stock has been corrected by 3.67% and in the last one month it has been corrected by 8.86%. The stock has a 52-week high and low of $14.14 and $9.15, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight premium to its peers, considering the decent volume growth in Life Sciences and Commodities division, and modest outlook. For the valuation purpose, peers such as Smartgroup Corporation Ltd (ASX: SIQ), IPH Ltd (ASX: IPH), Future First Technologies Ltd (ASX: FFT), and others have been considered. Considering the company’s improved financial performance in FY22, rise in H1FY22 dividend, decent outlook, its ongoing focus on disciplined acquisition strategy, and indicative upside in valuation, we give a “Buy” rating on the stock at the current market price of $11.94 as on 29 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ALQ Daily Technical Chart, Data Source: REFINITIV

Duratec Limited

DUR Details

Initial Substantial Holder Update: Duratec Limited (ASX: DUR) is mainly involved in providing assessment, protection, remediation, and refurbishment services to a broad range of assets and infrastructure. Recently, James Patrick Giumelli Ertech Holdings Pty Ltd, became a substantial holder of the company with 19.87% voting power.

2021 AGM Highlights: On 19 November 2021, DUR held its 2021 Annual General Meeting, wherein, the management highlighted that the company has a decent pipeline of work, and its business is very well positioned for growth over the medium term. Some of the key highlights of AGM are as follows:

• FY21 Results: Despite the challenging operating conditions, DUR generated total revenue of $235.7 million in FY21, down by 4.7% on FY20. Further, DUR reported normalized EBITDA of $18.8 million, down by 9.1% on FY20.
• Decent Pipeline of Work: At the AGM, the management highlighted that the current orderbook has increased significantly to an historic high of $315.0 million and its pipeline, comprising tendered and identified opportunities, is $1.9 billion.
• Robust Balance Sheet: With effective working capital management and low level of debt on its balance sheet, DUR seems well positioned for growth.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: DUR is exposed to the risks associated with COVID-19 shutdowns, border restrictions, skilled labour shortages, wage and salary pressures, the rising cost of building and construction materials and freight costs.

Outlook: Due to the ongoing COVID-19 Delta variant impacting the operating environment, the company has not made financial forecast for FY21. With the increasing of vaccination rates, opening of borders, the company is looking forward to normalisation of trading conditions nationally. The company is also exploring the option of sourcing labour from other jurisdictions to assist on projects in readiness for international border opening. The company is planning to release its 1HFY22 results on 28th February 2022.

Stock Recommendation: Over the last three months, the stock has been corrected by 27.7% and is trading lower than the average 52-week price level band of $0.295 - $0.615. On a TTM basis, the stock is trading at an EV/EBITDA of 3.3x, lower than the industry (Construction & Engineer) median of 6.1x, thus seems undervalued. Considering the rise in the company’s orderbook, its effective working capital management, low level of debt, current trading level, valuation on TTM basis, and associated key business risk, we give a “Speculative Buy” rating on the stock at the current market price of $0.295 as on 29 November 2021, 2:30 PM (GMT+10), Sydney, Eastern Australia.

DUR Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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