Optimism Around Small and Mid-Cap Stocks; Lens at CWY, SDF, OPC, BTC, MNY, EML

  • May 26, 2020 AEST
  • Team Kalkine
Optimism Around Small and Mid-Cap Stocks; Lens at CWY, SDF, OPC, BTC, MNY, EML

Summary

  • Commodities prices are trading under pressure amidst Chinese trade spat, which is further seeding the speculation of weak demand ahead.
  • While the consumption-based commodities with strong supply chain, such as copper, crude are declining in prices, commodities with supply constraints such as iron ore are under rally.
  • The new inspection policy on the Australian iron ore is anticipated by the market to put further strain on the already disturbed supply chain of iron ore.
  • In the wake of ongoing geopolitical events, technical analysis could be a good tool to navigate the high volatile market.

Economic disruption due to coronavirus outbreak is expected to be profound and long lasting, owing to a major hit on economic activities including manufacturing and industrial output arising from government measures such as lockdowns and travel restrictions rolled out to curb the virus spread. Several businesses are facing a tough time in absorbing the shock induced from COVID-19. By optimising their expenses and exploring new opportunities, numerous companies are looking to mitigate the risk and move ahead.

As nations are beginning to reopen their economies with cautious approaches, opportunities are expected to arise for several businesses to capitalise upon in the upcoming period. Moreover, governments around the world are helping small and medium-scale enterprises amid the COVID-19 scenario to aid in reviving growth.

In this backdrop, let us discuss six ASX-listed small and mid-cap stocks- CWY, SDF, OPC, BTC, MNY and EML.

 

Cleanaway Waste Management Limited (ASX: CWY)

NSW-based, Cleanaway Waste Management is a total waste management, and environmental & industrial services company. CWY offers a range of essential services to commercial & industrial customers, hospitals, government infrastructure, resources, manufacturing, and municipal councils. The Company employs over 5,000 people working from nearly 250 locations across Australia.

Recently, CWY presented at Macquarie Australia Conference, highlighting its position as the only ASX 100 waste management company, leading in every segment catered. The Company is growing portfolio of prized infrastructure assets across the waste management value chain.

The Company’s financial performance for FY20 is in line with its FY20 earnings guidance and internal forecasts. Moreover, it has reported no material change in volumes for any of its operating segments.

Though the Company has suspended its earnings guidance, given the increasing market uncertainty around the impact of COVID-19, CWY has a strong balance sheet and significant liquidity. At the end of February 2020, under existing banking facilities, more than $357 million of committed headroom were available. In February 2020, CWY issued long-term notes worth $400 million in the US Private Placement market, boosting the weighted average maturity across its debt facilities to nearly six years. Its interest coverage ratios and Net Debt/EBITDA are within debt covenants.

In 1H FY 2020, underlying EBITDA was $234.6 million and net revenue was $1.07 billion, representing an increase of 2 per cent and 1 per cent on pcp basis. The Company also paid an interim dividend of 2 cps.

On 25 May 2020, CWY last traded at $1.920, up by 3.226 per cent from its last close. The Company has a market cap of $3.82 billion and its stock has generated a 1-month return of 9.09 per cent.

Steadfast Group Limited (ASX: SDF)

Financials sector player, Steadfast Group, founded in 1996, operates a general insurance broker network and group of underwriting agencies in Australasia.

In its trading update for April 2020, the Company highlighted that its underwriting agencies continued to outperform with robust organic growth, while broker network continued to experience very low take up of the deferred premium offer available from some insurers.

There had been no adverse impact on its working capital position and EBITA was noted in line with SDF’s expectations before COVID-19. For 10 months to April 2020, EBITA remained solid at 21.8 per cent, ahead of the previous corresponding year.

As of 21 May 2020, the Company holds an unutilised corporate debt facility of c.$180 million, in addition to its working capital. On 25 May 2020, SDF last traded at $3.230, up by 2.54 per cent from its last close. The Company has a market cap of $2.72 billion and its stock has generated a 1-month return of 15.38 per cent.

OptiComm Limited (ASX: OPC)

Licensed telecommunications carrier, OptiComm designs, operates, builds, and maintains FTTP networks. The Company has its operations across Australian Capital Territory, New South Wales, Queensland, South Australia, Victoria, and Western Australia.

In first half of FY2020, revenue, EBITDA and NPAT of the Company increased by 19, 12 and 7 per cent on pcp basis, respectively. Revenue from network operations and construction increased by 31 per cent and 4 per cent on pcp basis.

As the construction margins got impacted by mix change (more MDU and commercial), the Company is expecting improved construction margins in the second half of FY2020. Recurring revenue in Q3 remains ahead of expectations.

Despite a market impacted by COVID-19, the business continued as normal, according to the company presentation at Goldman Sachs Emerging Leaders Conference. Construction activity is continuing as planned, with the Company is expecting to complete majority of over 28,000 lots in progress over the next 18 months.

On 25 May 2020, OPC last traded at $4.670, down by 0.638 per cent from its last close. The Company has a market cap of $489.15 million and its stock has generated a 1-month return of 9.81 per cent.

BTC Health Ltd (ASX: BTC)

BTC Health Ltd is a pooled development fund, which actively invests in businesses that develop, acquire, and distribute innovative medical products in New Zealand and Australia. Bio101 is a 100 per cent owned investee company, which provides company administration and professional financial services to healthcare sector players.

BTC’s net cash position remains strong at $3.5 million, as of 26 March 2020. The Company has confirmed that revenue guidance for full year ending June 2020 is anticipated to lie in the range of $660,000-$720,000. This signifies growth of $158,000 - $218,000 over the prior year.

The Company recently released a market update concerning its key investment in BTC Speciality Health, which witnessed a reduced demand for consumables in April 2020, owing to the COVID-19 pandemic, as most of the elective surgeries were cancelled.

After the National Cabinet meeting held on 15 May 2020, Prime Minister Scott Morrison, mentioned that all elective surgeries might get resumed in the coming weeks. To support hospitals while they resume elective surgeries, BTC Speciality Health has kept its inventory solid with normal levels of workforce.

On 25 May 2020, BTC settled at $0.105, up by 12.903 per cent from its last close. The Company has a market cap of $22.89 million and its stock has generated a 1-month return of 30.99 per cent.

Money3 Corporation Limited (ASX: MNY)

Financials sector player, Money3 is a professional provider of non-bank finance, offering personal loans and car loans of maximum $12,000 and $50,000, respectively. 

MNY holds a strong cash balance of $43 million, as at 27 April 2020, and aims to continue to grow with prudent loan originations. Regarding debt facility, its Australian facility can be stretched to December 2022 and current debt facilities in New Zealand can run until April 2022. Interestingly, the loan book of MNY is mainly funded by equity and has low leverage.

In Australia, every 1 of 500 vehicles have Money3 loan and in New Zealand, every 1 in 800 vehicles have a Go Car Finance loan. In line with its half year announcement, the Company declared an interim dividend of 5 cents per share.

YTD March 2020 results are as follows:

 

On 25 May 2020, MNY closed the day’s trade at $1.620, down by 1.52 per cent from its last close. The Company has a market cap of $304.79 million and its stock has generated a 1-month return of 33.20 per cent.

EML Payments Limited (ASX: EML)

Pre-paid financial cards issuer, EML Payments is a developer of customised payment solutions for its brands and their customers, covering 28 countries in Australia, EMEA and North America.  

The Company has a long-term strategy to provide revenue and earnings diversification, via strategic acquisitions and organic growth. As at 30 April 2020, EML holds more than $125 million in cash with YTD operating cashflow converted at nearly 100 per cent of EBITDA.

EML delivered strong financial results till the end of February 2020. However, from mid-March, the malls segment experienced deteriorating conditions.

For the first nine months to 31 March 2020, key highlights are as follows:

  • Gross Debit Volume was $9.83 billion, an increase of 55 per cent on pcp basis.
  • Gross profit margin was 75.9 per cent versus 73.7 per cent in the pcp basis.
  • Revenue stood at $87.1 million, an increase of 20 per cent on previous corresponding year.
  • EBITDA was $27 million and operating cash flow was $27.3 million.

EML issued 3,059,347 number of shares more than its available listing capacity, which signifies less than 1 per cent of the Company’s total shares on issue of 354,831,715 ordinary shares. This was in connection with the acquisition of Prepaid Financial Services Limited, a multi award winning European provider of white label payments and banking-as-a-service technology.

On 25 May 2020, EML closed at $3.580, up by 0.845 per cent from its last close. The Company has a market cap of $1.28 billion and its stock has generated a 1-month return of 50.42 per cent.

(All currencies in AUD unless or otherwise stated)

 


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