CIMIC Group Limited

CIM Details

Takeover Bid by CRI: CIMIC Group Limited (ASX: CIM) is primarily involved in the business of engineering led constructions, mining, public private partnerships (PPPs) and servicing. Recently, the company’s wholly-owned subsidiary, CIMIC Residential Investments Pty Ltd (CRI), made an off-market takeover offer to acquire all of the shares in Devine Limited. CRI is offering $0.24 cash for each ordinary share in Devine. On 30 June 2021, Devine Limited released the first supplementary target's statement wherein it notified that its Directors are recommending the shareholders to accept the offer made by CRI in the absence of a superior proposal.

Latest Material Developments: On 3 June 2021, CIM confirmed CPB Contractors (CIM’s group company) as the builder of the one-of-a-kind build-to-rent residential tower, which was awarded by Pitt Street Developer South Pty Ltd, which shall generate $150 million in revenue. On 2 June 2021, CIM’s UGL secured $150 million contract pertaining to Kidston clean energy project for installation and construction of a high voltage transmission line.

FY20 Financial Highlights: Amidst COVID-19 turmoil, award of new projects delayed and slow revenue generation across all activities, the company’s diluted underlying revenue reduced from ~$14.7 billion in FY19 to ~$12.61 billion in FY20. CIM registered higher EBITDA margin of 15.2% in FY20 from 14.6% in FY19. Despite low cash flows, CIM holds a decent liquidity profile with cash balance of $3.09 billion in FY20 relative to $1.75 billion in FY19. CIM holds $30.1 billion of contracts in the pipeline and secured $7.4 billion in new work.

Revenue and Margin Highlights; Analysis by Kalkine Group

Key Risks: COVID-19 pandemic serves as the major risk for CIM with uncertain consequences. With increased contracts in pipeline, CIM may seek cash flow problems and low EBITDA conversion. Reduced labour mobility further adds to challenges.

Outlook: Recent contracts, for instance, Kidston clean energy project and build-to-rent residential tower are expected to support and drive top-line. CIM expects to capitalize on Thiess’ strong operational performance in mining activities. Tenders of over $500 billion are expected to be issued in 2021, which falls under CIM’s line of work.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Stock Recommendation: The stock of CIM gave a return of ~-6.211% in the last one month and a return of ~+12.450% in the last three months. The current market capitalisation of CIM stands at ~$6.23 bn as of 30 June 2021. The stock is currently trading below the average 52-weeks’ price level range of $16.860 - $27.510. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at slight discount as compared to its peer average, considering COVID-19 uncertainties and declining operating cash flows. For this purpose, we have taken peers Monadelphous Group Ltd (ASX: MND), Lycopodium Ltd (ASX: LYL), Service Stream Ltd (ASX: SSM), to name a few. Considering a strong contract build-up, contracts with investment-grade counterparties, prudent liquidity position and valuation, we recommend a “Buy” rating on the stock at the current market price of $19.78, down by 1.249% as of 30 June 2021.

CIM Daily Technical Chart, Data Source: REFINITIV 

NRW Holdings Limited

NWH Details

Key Developments in Exploring Growth Avenues: NRW Holdings Limited (ASX: NWH) provides diversified contract services to the resources and infrastructure sectors. On 18 June 2021, announced the receipt of a letter of intent from Karara Mining Limited pertaining to an estimated $702 million mining services contract. On 29 April 2021, NWH announced RCR Mining Technologies’ (wholly-owned subsidiary) reception of $27.2 million contract for construction and design of a primary crushing plant situated at Fortescue Metals Group’s Cloudbreak mine.

H1FY21 Financial Highlights: The company has recorded revenue growth of 44% to $1,168 million including revenue generated by associates (statutory revenue at $1,137.7 million) versus $808.7 million (statutory revenue $783.6 million) in H1FY21. The growth was led by both the BGC Contracting acquisition and continued organic rise across the business. Moreover, Group’s EBITDA rose 14% YoY to $132.8 million from $116.4 million. However, the company’s normalised NPATN reduced to $37.0 million from $41.2 million on pcp basis owing to the challenging operating environment due to COVID-19 measures.

Bottom-line Highlights; Analysis by Kalkine Group

Key Risks: Broader risks include the risk assessment in the tender and contracting phase, project risks, treasury management, and credit risks. Further, its financial performance may hinder with volatile price impacts of input material.

Outlook: The company has delivered record revenue in H1FY21 with higher earnings and strong cash conversion. Further, the company remains hopeful of sustaining growth driven by rising expenditure on Infrastructure projects at the state and federal level, strong commodities demand, and as a result of Primero acquisition. The Pipeline of tenders and prospects estimated to be awarded in the next 12 months rose to $14.1 billion of which around $5 billion are currently submitted tenders. Primero has an order book of around $165 million and has a preferred EPC contractor status in multiple projects of around $1 billion. Moreover, it is expecting to secure revenue of between $2.2 billion to $2.3 billion for FY21.

Valuation Methodology: Price/Earnings based Relative Valuation Method (Illustrative)

Stock Recommendation: The stock of NWH gave a return of ~-9.288% in the last one month and a return of ~-25.445% in the last three months. The stock is currently trading below the average 52-weeks’ price level range of $1.360 - $3.190. We have valued the stock using the Price/Earnings multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at slight premium as compared to its peer average, improved EBITDA levels, lucrative pipeline of tenders & projects and strong cash conversion traits. For this purpose, we have taken peers Emeco Holdings Ltd (ASX: EHL), Lycopodium Ltd (ASX: LYL), Southern Cross Electrical Engineering Ltd (ASX: SXE), to name a few. Considering a strong portfolio of contracts, recent revenue record, improved EBITDA, and valuation, we recommend a “Buy” rating on the stock at the current market price of $1.465, down by ~1.347% as of 30 June 2021.

NWH Daily Technical Chart, Data Source: REFINITIV

Integrated Research Ltd

IRI Details

H1FY21 Financial Highlights: Integrated Research Limited (ASX: IRI) is a provider of varied software solutions such as collecting and storing data, performance tracking, helpdesk applications, event automation, resource management and job scheduling. During H1FY21, IRI has posted a 36% decline in revenue to $34.1 million as compared to the prior period, primarily diluted by a 49% YoY decline in revenue from license fees and a 15% YoY reduction in revenue from maintenance fees. However, the cash receipts from customers declined by only 7% to $42.4 million driven by good conversion of receivables. EBITDA margin declined from 39% in H1FY20 to 13% in H1FY21. A US$1.4 million was signed in late December for delivering Payment Analytics and 16 new customers were added during the period.

H1FY21 Results (Source: Analysis by Kalkine Group)

Key Risks: The company’s performance in H1FY21 was impacted by deal deferrals and caution in buying behaviour. The company is exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions with the lengthening of typical sales cycles and deferred purchases by customers.

Outlook: The company is estimating to achieve revenue between $40 million to $45 million in H2FY21. For FY21, revenue expectations are in range of $74.1 million to $79.1 million (FY20: $110.9 million). Driven by the recent acceleration in sales, the company is optimistic with H2FY21 performance relative to H1FY21. Further, IRI’s license fee revenue recognised to date in H2FY21 has surpassed the revenue in H1FY21. Besides, the company highlighted that the launch of new products to drive growth.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Stock Recommendation: The stock of IRI gave a return of ~-15.801% in the last one month and a return of ~-16.164% in the last three months. The current market capitalisation of IRI stands at ~$332.37 million as of 30 June 2021. The stock is currently trading below the average 52-weeks’ price level range of $1.870 - $4.920. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount as compared to its peer average, considering COVID-19 uncertainties declining revenues & cash receipts and unfavourable impact of deal deferrals. For this purpose, we have taken peers Infomedia Ltd (ASX: IFM), Janison Education Group Ltd (ASX: JAN), TechnologyOne Ltd (ASX: TNE), to name a few. Considering favourable guidance, improved licence fee revenue, launch of new products and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.945, up by ~0.777% as of 30 June 2021.

IRI Daily Technical Chart, Data Source: REFINITIV

Whispir Limited

WSP Details

Q3FY21 Financial Performance: Whispir Limited (ASX: WSP) is a software-as-a-service (SaaS) based platform that enables businesses to integrate effectively with respective customers. Annual recurring revenue increased by 20.3% in Q1FY21 on pcp basis, driven by strong growth in net new customers. As a result of the successful completion of $45.3 million placement to existing and new institutional investors, the cash balance increased substantially from ~$10.86 million as of 31 December 2020 to ~$51.67 as of 31 March 2021.

Key Financial Highlights, Analysis by Kalkine Group

Key Risks: With global market exposure, WSP assume high foreign currency risk. Although cash balance has improved, a prudent liquidity management system is required to manage credit risk.

Outlook: WSP targets $53.0 - $55.3 million in ARR for FY21 and consequently a revenue projection in range of $49.0 - $51.0 million. During the quarter, WSP leveraged its channel partnerships and renewed partnership agreement with Telstra Corporation Limited for a span of 3 years. In North America region, WSP holds new go-to-market initiatives in place, which are building under the Amazon Web Services (AWS) ecosystem. These channel partnerships are focused on supporting WSP’s digital marketing campaigns and targeting untapped SME and SMB businesses.

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Stock Recommendation: The stock of WSP gave a return of ~-11.525% in the last one month and a return of ~-22.781% in the last three months. The current market capitalisation of WSP stands at ~$291.10 million as of 30 June 2021. The stock is trading lower than the average of the 52-week low price of $2.060 and 52-week high price of $5.240, which indicates a good opportunity for accumulation. We have applied EV/Sales based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to EV/Sales Multiple (NTM) (Peer Average), considering robust channel partnerships and go-to-market initiatives. For relative valuation, we have taken peers like Livetiles Ltd (ASX: LVT), Praemium Ltd (ASX: PPS), TechnologyOne Ltd (ASX: TNE), to name a few. Considering robust partnership contracts, growing customer base, improved ARR, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $2.610, up by ~4.819% as of 30 June 2021.

WSP 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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