Cedar Woods Properties Limited

CWP Details

Acquisition of Land: Cedar Woods Properties Limited (ASX: CWP) is engaged in the development and investment of property. Recently, the company has expanded its portfolio via an acquisition of an 86-hectare site in Eglinton for $49.5 million. As a result, the company’s development pipeline enhanced by over 1,200 lots and is expected to contribute to CWP’s earnings over 11 years from FY24.

• The said site provides exposure to Perth’s popular north-west growth corridor, which has traditionally accounted for around 25% of total metropolitan Perth land sales.
• The acquisition would be financed via its existing corporate finance facility.

Q1FY22 Operational Updates and Market Scenario:

• The company managed to deliver a strong first quarter of sales and settlements throughout the portfolio, evident by a growth of 39% in pre-sale contracts of $460 million against $332 million in Q1FY21.
• CWP delivered the highest quarterly sales result since Q4FY20 and the second-highest quarterly result in the last three years. In addition, lot and unit sales soared by 9% on Q1FY21.
• The market sentiments for the new housing sector are strong, likely to be supported by robust fundamentals of low unemployment, buyer confidence, low-interest rates, supply limitations as well as scaling demand.
• Moreover, the Federal Government’s recent announcement for resuming immigration in FY22 may support the housing demand. The Government anticipates net overseas migration to build in the upcoming three years, which may result in population growth to around 1.4% in FY25 and drive housing demand.

Pre-Sales Contract (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk: The company requires an ample amount of funding in order to run its operations smoothly. Any shortage of funds could hamper its operational and financial health.
• Regulatory Risk: CWP is exposed to a more complex regulatory environment; any non-compliance could lead the business to fines, penalties, etc.

Outlook:

• Looking forward, the company is likely to be in a strong position, backed by favourable market conditions in all jurisdictions and $460 million in pre-sales expected to settle over FY22, FY23 and FY24.
• For FY22, CWP expects strong growth in earnings and is in a decent position to continue to grow earnings over the medium term, with a pipeline of more than 9,500 undeveloped lots/dwellings in four operative states.
  

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: 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: At the end of Q1FY22, the company had a healthy balance sheet, supported by low gearing and enough capacity to finance the business requirements. The stock of CWP is currently trading below its 52-week low-high average of $5.270 - $7.700, respectively. The stock has been corrected by ~14.84% and ~18.29% in the past one and three months, respectively. The stock has been valued using the P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ median P/E multiple, considering the positive market fundamentals and supportive outlook, etc. For the purpose of valuation, peers such as Servcorp Ltd (ASX: SRV), Sunland Group Ltd (ASX: SDG), Eureka Group Holdings Ltd (ASX: EGH), and others have been considered. Considering the expected upside in valuation, addition to development pipeline, growing revenue, support from Federal Government, decent liquidity position, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $5.400, as on 24 November 2021, 11:20 AM (GMT+10), Sydney, Eastern Australia.

CWP Daily Technical Chart, Data Source: REFINITIV  

Spirit Technology Solutions Ltd

ST1 Details

Change in Directors Interest: Spirit Technology Solutions Ltd (ASX: ST1) is involved in the provisioning of IT&T services, which include the provisioning of telecommunication services, cloud services, managed IT services and cyber security services. Recently, director Gregory Ridder has made a change to holdings in the company via the acquisition of 55,996 fully paid ordinary shares, and 44,004 fully paid ordinary shares on 19 and 22 November 2021, respectively.

Q1FY22 Financial Summary:  

• During the quarter ended 30 September 2021, ST1 posted strong results despite three months of lockdowns, evident by the growth of 98% in revenue to $30.9 million on a YoY basis.
• ST1 recorded a positive underlying EBITDA of $2 million in spite of the seasonally low quarter.
• ST1 also received $5.1 million of capital from the sale of consumer assets, which is to be used for financing acquisitions, driving organic growth or to meet deferred acquisition payment.

Quarterly Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Cybersecurity Risk: ST1’s business could be impacted by the risk arising from the failure in maintaining cybersecurity.
• Stiff Competition: The company’s operational and financial health could be impacted by the rising market share of peers in the industry in which it operates.

Outlook:

• ST1 expects sales demand to rise in Q2 and across 2HFY22, and it is already witnessing recovery in the SMB market
• Looking forward, the company believes that it well placed to capitalise on the ongoing structural changes occurring to the modern workplace in terms of cyber risk, remote worker needs, demand for data, cloud and shortage of IT skills.
• ST1 has scheduled to conduct the 2021 Annual General Meeting on 29 November 2021.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: 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: The company is engaged in the process of divesting non-core assets in order to operate in line with its business strategies. The company had a cash balance of $12.3 million and $7.0 million of funds in its CBA debt facility as on 20 October 2021. The stock of ST1 is currently trading near to its 52-week low level of 0.210, offering a decent opportunity for accumulation. The stock has been corrected by ~10.90% and ~12.49% in the past one and three months, respectively. The stock has been valued using the P/E Multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average P/E multiple, considering the recovery in the SMB market and rising demand for service, etc. For the purpose of valuation, peers such as Uniti Group Ltd (ASX: UWL), TPG Telecom Ltd (ASX: TPG), Spark New Zealand Ltd (ASX: SPK), and others have been considered. Considering the expected upside in valuation, positive underlying EBITDA, growth in revenue, decent liquidity position, deleveraged balance sheet, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.240, as on 24 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ST1 Daily Technical Chart, Data Source: REFINITIV

Bionomics Limited

BNO Details

Proposed Initial Public Offering: Bionomics Limited (ASX: BNO) is engaged in the development of innovative treatments for cancer and diseases of the central nervous system. The company has recently filed a registration statement in relation to the proposed public offering of American Depositary Shares (ADSs), which was announced in the month of August 2021. The company added that each ADR would reflect one or a number of its ordinary shares in the United States. The company has applied to list its ADS’s on Nasdaq under the ticker symbol “BNOX”.

Key Updates:

• As announced on 19 November 2021, the company has decided not to proceed with a capital distribution to shareholders with respect to its right to receive royalty interests under the 2014 Research Collaboration and License Agreement with Merck Sharp & Dohme Corp.
• In addition, BNO has received clearance of IND for Evaluation of BNC210 in a Phase 2 Social Anxiety Disorder PREVAIL Study from US-FDA.

Q1FY22 Financial Summary:

• During the quarter ended 30 September 2021, BNO recorded increased research & development (R&D) expenditure for the quarter to $3.27 million from $1.53 million in the previous quarter, mainly due to the ATTUNE Study.
• BNO also commenced a Phase 2b trial to evaluate the tablet formulation of BNC210 in patients with Post-Traumatic Stress Disorder, and the topline results are likely to come in 1HFY23.

Research & Development Expenditure (Source: Analysis by Kalkine Group)

 Key Risks:

• Clinical Trial Risk: The company’s operational and financial health could be impacted by any failure in the ongoing clinical trial.
• Regulatory Risk: BNO is exposed to a more complex regulatory environment; any failure in compliance could lead the business to fines, penalties etc.

Outlook:

• The company would continue to undertake drug and clinical development and would also be seeking to commercialise the outcomes.
• The company is expecting to commence PREVAIL study by the end of 2021 and is likely to read out topline data by the end of 2022.
• The company has scheduled to conduct the Annual General Meeting on 2 December 2021.

Stock Recommendation: The company closed Q1FY22 with a cash balance of $22.17 million as compared to $28.50 million as on 30 June 2021. The stock of BNO is trading near to its 52-week low level of $0.105, offering a decent opportunity for accumulation. The stock has been corrected by ~15.38% and ~38.88% in the past one and three months, respectively. The stock is trading at a P/BV multiple of 2.9x, compared to the industry median (Healthcare) of 3.8x on a TTM basis. Thus, it can be said that the stock is undervalued at the current trading levels. Considering the valuation on a TTM basis, proposed US IPO, low debt to equity, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.110, as on 24 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

BNO 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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