Stocks’ Details

Strategic Elements Limited

Filing of Patent by Subsidiary Company: Strategic Elements Limited (ASX: SOR) is a registered Pooled Development Fund (PDF), which focuses on investments in Australian SME across the resources and technology sectors. The market capitalisation of the company stood at ~$34.36 Mn as on 29^th October 2020. Recently, the company notified that its subsidiary Australian Advanced Materials has applied for a new patent in order to protect the intellectual property of its Nanocube Memory Ink (ReRAM) technology. In another update, the company announced that it is seeking to raise $1,000,000 through the Share Purchase Plan, wherein the eligible shareholders have been provided an opportunity to purchase shares. SOR witnessed strong support from shareholders and received over $4,294,000 application, which surpassed the target of SPP. However, the company is likely to accept applications on a first come and first serve basis up to $1,000,000. SOR would close the SPP on 2^nd November 2020.

Financial Highlights: For the quarter ended 30^th September 2020, the company reported an expenditure of $403k. This includes project development, product manufacturing costs and administration costs. During FY20, the company reported contract revenue of $244,500 as compared to $51,250 in FY19. The revenue was comprised of $150,000 from the sale of tenements, and the remaining $94,500 was earned from the provisioning of services. SOR recorded a loss of $2,547,826 against $1,980,372 in FY19, which mainly indicates the research and development activities of the Group and administration costs.

Key Financials (Source: Company Reports)

Impact of COVID-19: As of now, the company has not witnessed any financial impact from COVID-19. However, the company is expecting that pandemic may leave a positive or negative impact on its business.

Stock Recommendation: As on 30^th June 2020, the cash and term deposit balances of the company stood at $2,270,149. Current ratio of the company stood at 9.78x in FY20 as compared to the industry median of 1.38x. This reflects that the company is in a decent position to address its short-term obligations as compared to the broader industry. The 52-week low-high range for the stock stands at $0.033 - $0.215, respectively. On a technical analysis front, the stock of SOR has a support level of ~$0.062 and a resistance level of ~$0.155. Therefore, considering the recent filing of a new patent, decent liquidity position, nil debt to equity and key risks with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.140 per share, up by 16.666% on 29^th October 2020, owing to the release of new patent filing.

Fatfish Group Limited

Completed Capital Raising with Strong Support from Investors: Fatfish Group Limited (ASX: FFG) is engaged in investment in tech and internet companies, with a market capitalisation of ~$30.98 Mn as on 29^th October 2020. Recently, the company announced that it has successfully finished capital raising of $1.5 million, under which it has issued 100,000,000 new fully paid ordinary shares to sophisticated investors at $0.015 per new share. The company increased its placement target from $1 million to $1.5million on the back of a positive response from the market. In addition, FFG would use the funds for the development of its existing tech ventures and expansion into new ventures. For the half-year ended 30^th June 2020, the company recorded revenue from ordinary activities of $344,916 as compared to $1,492,261 in 1H FY19. Net loss for the half-year amounted to $6,222,649 against $4,221,876 in 1H FY19.

Key Financials (Source: Company Reports)

What to Expect: On the back of new capital, the company seems to be well-placed to further develop its ventures in fintech, e-commerce and gaming for pursuing exciting new opportunities in Australia, Asia, and Europe.

Stock Recommendation: As on 30^th June 2020, the cash and cash equivalents of the company stood at $392,727 as compared to $596,472 as on 31^st December 2019. In the past one and three months, the stock has moved up by 123.52% and 280%, respectively. As a result, the stock is inclined towards its 52-week high level of $0.048. FFG has an EV/Sales multiple of 19.1x as compared to the industry average of 9.3x on TTM basis. In addition, the stock is trading at a price to book value multiple of 2.9x against the industry median (Financials) of 1.1x on TTM basis. Thus, it seems that the stock of FFG is overvalued at current trading levels. On a technical analysis front, the stock of FFG has a support level of ~$0.012 and a resistance level of ~$0.049. Therefore, considering the higher valuation, upside movement in the stock within the past few months and current trading levels, we give an “Expensive” recommendation on the stock at the current market price of $0.036 per share, down by 5.264% on 29^th October 2020. We further suggest investors to wait for better entry levels.

Adveritas Limited

Execution of Multiple Sales Strategies Supported Topline Growth: Adveritas Limited (ASX: AV1) is involved in the provisioning of comprehensive digital advertising fraud prevention services via its SaaS product, TrafficGuard®. The market capitalisation of the company stood at ~$34.58 Mn as on 29^th October 2020. During FY20, the company reported revenue from ordinary activities of $1,227,213, reflecting a rise of 91%. This was supported by the execution of multiple sales strategies during 1H FY20. In addition, the company added numerous key clients, including Go-Jek and MUV. AV1 adopted a “three by three” sales model in order to further improve its sales strategies and maximise revenue growth. The three-pricing model includes Freemium, Land and expand, and Long-dated contracts. Net loss for the year amounted to $9,487,359 as compared to $6,652,197 in FY19.

Financial Summary (Source: Company Reports)

Outlook: Going forward, the company is expecting to generate revenue through the expansion of its Freemium pipeline via increased digital marketing in multiple platforms as well as executing strategic partnerships with agencies and domain name registries. The company has scheduled to conduct its Annual General Meeting on 24^th November 2020.

Stock Recommendation: The company closed the year with the cash and cash equivalents of $8,351,840. In the past one month, the stock has corrected 23.19%, and as a result, the stock is trading closer to its 52-week low level of $0.065, offering decent opportunities for accumulation. In addition, the stock is also trading at a price to book value multiple of 4.6x as compared to the industry average (Technology) of 14.3x on TTM basis. On a technical analysis front, the stock of AV1 has a support level of ~$0.076 and a resistance level of ~$0.12. Thus, in light of the growth in revenue, future focus, current trading levels and key risks, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.095 per share, down by 4.041% on 29^th October 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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