Small-Cap stocks that are good to go - Awe Limited + Greencross Limited
Sep 27, 2015 | Team Kalkine
AWE Limited
The company, whose principal activity continues to be exploration, development and production of hydrocarbons, has presented its consolidated financial report for the year ended 30 June 2015. The company delivered a solid operating performance in a challenging environment for oil prices with production from its assets portfolio at the top end of its market guidance and sales revenues marginally below the guidance. There was a substantial increase in resources and reserves with 2P reserves increasing by 23% to 114 mmboe (after production) and 2C Contingent Reserves increasing by 57% to 121 mmboe.
There was significant exploration success with new gas discoveries which resulted in the recognition of new 2P reserves of 16 mmboe and 2C Contingent Reserves of 50 mmboe. Substantial progress was also made in key development projects including drilling at Sugarloaf where a substantial growth in reserves was recorded. The focus on health and safety continued during the year and there were no reportable environmental incidents. After two years with no safety incidents, the company was disappointed that two Lost Time incidents were recorded in the last year.
Performance Indicators (Source: Company Reports)
The consolidated group reported a net loss after tax of $ 230 million for the year compared to a net profit after tax of $ 62.5 million in the previous year (which included a net profit on the sale of the 50% interest in the Ande Ande Lumit project). The result included a net impairment charge of $ 157.5 million ($ 246 million pre-tax) relating to the Tui and Cliff Head oil projects resulting from the decline in global oil price and the BassGas project resulting from a reduction in recognised 2P reserves.
AWE Perth Basin (Source: Company Reports)
Sales revenue of $ 283.7 million was 14% lower than the previous year due to the substantial decline in oil prices and the lower production volumes. The average realised oil and condensate price was 28% lower at $ 79 per barrel and approximately 25% of revenues came from long-term fixed-price gas contracts which provided diversification and stability. Field EBITDAX was $ 143.2 million compared to $ 208.8 million in the previous year. Net cash from operating activities was $ 62.2 million compared to $ 123.7 million in the previous year. The underlying loss for the period was $ 52.3 million after adjusting for non-recurring items of $ 177.9 million after tax including exploration and evaluation expenses of $ 37.6 million against an underlying profit of $ 7 million in the previous year. The company successfully completed refinancing of a syndicated bank loan facility increasing the facility by $ 100 million to $ 400 million and extending the term to May 2018.
Recently, the Company announced for spudding of second exploration well in China (block – QK12-3-1D). Then, it has also been reported that Yolla-5 development well, wherein AWE is a 35% JV partner, has been successfully tied-in to export facilities on the Yolla platform and production has also begun.
The company is pursuing growth initiatives from its extensive portfolio of assets with the objective of generating sustainable returns for its shareholders. It is pursuing a range of opportunities both conventional and unconventional but only where the business case continues to look positive in the current low oil price environment. We believe that there is value in this company which would translate into gains for investors and accordingly put a buy rating on the stock at the current price of $0.695.
AWE Daily Chart (Source: Thomson Reuters)
Greencross Limited
This is the pre-eminent integrated pet care company in Australia and the market leader in the ANZ pet care market. It has more stores in comparison to combined number of stores of four of its competitors. The number of clinics also outweigh the number of clinics four of its competitors have even when combined together. It employs the largest number of vets in its regions of operation numbering over 400. Its extensive reach means that more than half of pet owners in ANZ have convenient access to one or more stores or clinics. It is also the leading provider of grooming services and has a market share of 8% in a pet care market which is expanding. It has a unique integrated offering operating as a one-stop shop for products, vet care, grooming, DIY dog wash and speciality medical services. In addition, it offers a range of private label and exclusive brands and multi channel offerings with a growing online and digital presence.
Loyalty club members number more than 2.9 million and a swipe rate of more than 80% enables cross selling of targeted retail and services. The store and clinic network consists of 209 stores, 138 clinics, 42 in-store grooming salons and 109 in-store dog washes. The ANZ pet care market is estimated to be worth $ 9 billion growing at 4% annually. The ANZ vet services market is estimated to be worth $ 2.5 billion growing at 2% annually. The company has identified three growth platforms as it strives to increase its market share from 8% to 20%. For greenfield stores, it is targeting in excess of 20 stores every year with the target payback of 3.5 years. For co-locations, the target is more than 12 clinics annually with a payback of four years. Finally, the target for vet acquisitions is annualised revenue in excess of $ 20 million with the target payback of 4.5 years.
For the year FY 2015, the company reported strong growth in revenue and earnings. Revenues increased by 45% to $ 644.5 million while stores and clinic numbers increased to 332 from 246 in the previous year. The underlying gross margin rose by 46% to $ 356.2 million and the underlying percentage increased by 50 basis points to 55.3%. The underlying EBITDA grew by 60% to $ 86.8 million and the margin increased by 130 basis points to 13.5%. EPS rose by 43% to 34.3 cents per share and dividends grew by 36% to 17 cents per share.
Revenue and Outlets (Source: Company Reports)
Among the key achievements during the year were the accomplishment of the acquisition of 42 City Farmers stores and the integration has been completed on time and within budget. 21 vet clinics were added to the network bringing the total to 132 and these are expected to deliver over $ 31 million in annualised revenues. The joint venture was also established with Animal Referral Hospitals which is one of the leading speciality and emergency practices in Australia. The New Zealand retail business reported outstanding growth with 8% LFL sales growth and the company entered the vet services market in that country through the acquisition of three clinics in Wellington.
We believe that there are several things going for the company. It has plenty of growth potential because it is operating in a growing market unlike many other retailers. It operates in a fragmented market which leaves plenty of opportunity for growth by acquisition and the opportunity to grow revenues through the aggressive cross selling of products and services. We would have no hesitation in rating the stock as a Buy at the current price of $6.53.
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