Liontown Resources Limited

LTR Details

Tax Credit Scheme: Liontown Resources Limited (ASX: LTR) is a battery metals exploration and development company focused on developing its Kathleen Valley Project to a standalone mine. On 21 July 2020, the company stated that it has successfully applied for tax credits under the Federal Government’s Junior Minerals Exploration Incentive (JMEI) scheme for the 2020/2021 financial year. Pertaining to the scheme, LTR has received an allocation of up to A$1.69 million, which is likely to be distributed to eligible shareholders as a tax offset for the same financial year.

Other Recent Update: Recently, the company stated that Craig R Williams, Director of the company has acquired 5,500,000 fully paid ordinary shares. In another update, the company stated that Anthony J Cipriano, another Director of the company has acquired 3,000,000 fully paid ordinary shares.

July 2020 Update: During the period, with respect to Kathleen Valley Lithium Project (WA), it was added that 80% measured, indicated and inferred mineral resource estimate has been wrapped up for Kathleen Valley Lithium-Tantalum deposit as further drilling success paves way for next upgrade. Further, the positive Pre-Feasibility Study (PFS) reported over the period, identified various opportunities to improve the financial metrics for the Kathleen Valley Project.

Lithium Highlight (Source: Company Reports)

LTR Receives $1.5m Cash: On 14 July 2020, the company stated that it has received A$1.5 million in cash from Core Lithium Limited ("Core"). The payment correlates to the provisional consideration pursuant to the divestment deal inked with Core in 2017 for the sale of the Bynoe Lithium Project in the Northern Territory. As on 13 July 2020, LTR’s cash balance stood at $6.7 million.

Results at Moora Project: In another update, the company reported encouraging results from in-fill and extensional auger sampling at its 100%-owned Moora Project, situated approximately 150km north-northeast of Perth in Western Australia.

What to expect: This year, the company’s programs will be focused on plant operability and the ability to produce a premium-quality product that can be marketed accordingly. The updated MRE, which was due in late April/early May, is expected to provide a robust and much improved basis for a DFS, which is now planned to commence in 2021. In response to COVID-19, the company has reassessed its strategic objectives and funding position to ensure that it can maintain development momentum at Kathleen Valley.

Risks: The company is exposed to contractual risk as its ability to achieve its stated objectives may be materially affected by the performance by the parties of their obligations under the Acquisition Agreement. Mineral exploration and development are a high-risk undertaking. There can be no assurance that exploration of the Projects or any other exploration properties that may be acquired in the future will result in the discovery of an economic resource.

Stock Recommendation: In the past six months, the stock of LTR has increased by 47.06% on ASX. In the last one month, the stock went up 21.95%. The stock is currently trading above the average of its 52 weeks price level band. On a TTM basis, the stock is trading at a price to book multiple of 21.2x, higher than the industry average of 5.5x and thus seems overvalued. In the upcoming months, the company is expected to come up with various test work results and studies to produce a premium-quality product that can be marketed accordingly. Hence considering the aforesaid facts along with returns in the past one and six months, we suggest investors to wait for price correction and give an “Expensive” rating on the stock at the current market price of $0.13, up by 4% on 28 July 2020. 

LTR Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

WhiteHawk Limited

WHK Details

WHK Awarded 5 years Contract: WhiteHawk Limited (ASX: WHK) is known for identifying, prioritizing, & mitigating cyber risks leveraging AI & Open Data. On 28 July 2020, the company was selected as a cyber prime contractor on a newly awarded US$ 580,000 annual base contract per annum for the US Federal Government CISO (Chief Information Security Officer). Under the contract, the company will implement its Cyber Risk Radar, delivering continuous supervising, prioritization, and real-time mitigation of an enterprises' partners, vendors. WHK will also help in identification and mitigating of cyber and business risks on a time to time basis. The contract has an option of an additional US$600,000 per annum in services each year, for a total of 5-year period.

Update on Working Capital Facility: In another update, the company informed the market about the execution of the Share Purchase Agreement and Equity Swap Agreement with RiverFort Global Opportunities PPC Ltd. Per the Share Purchase Agreement, WHK will issue 12,987,013 ordinary shares with the placement price of A$0.077 per share. This depicts a discount of 9.4% to the closing share price on 30 June 2020. Whereas, per the, Equity Swap Agreement, WHK will receive payments on a monthly basis by RiverFort for an aggregate amount of A$1 million.

First Quarter 2020 Key Highlights: On the financial performance front, the contracted revenue for CY 2020 is currently at ~A$2.4 million. The company has strong pipeline of opportunities across currently operating revenue streams. During the first-quarter, revenues stood at US$516K, an increase of US$183K reported in the previous quarter. Sales receipt collected from customers in first quarter came in at US$561K, out of which US$263K is a renewable SaaS subscription. It has a current cash balance of US$1.5 million (or around A$2.4 Mn) as of 31st March 2020, which includes debt balance of A$400k.

Revenues Highlight (Source: Company Reports)

What to Expect: The company has a strong pipeline and is doubling down on the more economically resilient sectors of Defense Industrial Base, US Govt. and Financial & Insurance sectors for the remaining FY20. Moreover, the company remains on track to achieve continued sale of Cyber Risk Radars across the supply chains of the U.S. Department of Defense Military Services & Agencies. The company focuses on integrated Service with the Sontiq/EZShield Business Suite SaaS service to mitigate the cyber risks during the global pandemic. The company targets to achieve 30%-40% gross margin aggregate across all product lines.

Risk Analysis: The company might face issues relating to managing security and taking care of customer data. Further, loss of any potential customer due to market competition and foreign currency fluctuation risk as the company operates internationally poses a threat to its financial aspects. Moreover, stiff competition from peers remains potential headwinds.

Stock Recommendation: The stock has seen a substantial upside in terms of price movement with gain of 77.36% in last 3-months and 23.68% in last 1-month. The stock of the company is currently trading at a 52-week high price of $0.16. With several key awarded contracts and heavy project pipeline, the company seems to poise for growth going forward. The stock has a debt to equity ratio of 0.09x, higher than the industry average of 0.01x. On a TTM basis, the stock is trading at an EV/Sales multiple of 8.9x as compared to the industry median of 2.4x and thus seems overvalued. Considering the current trading levels, sharp movement in the share price in the last three months, and higher market volatility due to COVID-19 crisis, we suggest investors holding the stock to consider taking profits at the market price of $0.16, up by 70% on 28 July 2020. The recent contract with US federal government CISO to implement WhiteHawk’s Cyber Risk Radar aided the price movement. 

WHK Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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