Analyst Research

Interesting Small and Micro Caps Annual Results Roundup – Part 2

September 11, 2019

Interesting Small and Micro Caps Annual Results Roundup – Part 2

Most weeks this year, I have written articles on interesting small and micro caps. Now that the annual reporting season is behind us, it’s a good time to review company results.

Continuing on from my previous Interesting Small and Micro Caps Roundup Part 1 piece, this week I’m looking at six more companies and with my initial thoughts.

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
11/09/19NHL$0.012N/AN/A
Date of Report11/09/19ASXNHL
Price$0.012Price TargetN/A
Analyst RecommendationN/A
Sector: Technology52-Week Range: $0.0090 - 0.042
Industry: Health Information ServicesMarket Cap: $6.53 million

Source: Commsec

Novita Healthcare (ASX:NHL)

Digital healthcare and student training

  • Revenue +54% to $0.9 million
  • EBITDA loss down 39% to $2.5 million
  • Net Loss down 30% to $2.9 million
  • Cash Burn (cash flow deficit from operations) up 45% to $2.6 million

Although the growth in revenue is impressive, it was primarily attributable to increased grant funding and R&D incentives. Sales revenue was only $87K. This largely reflects the fact the that the company is only just starting to commercialise its core product, Tali Train, and is still developing its second product, Tali Detect.

I expect to see higher sales revenue in FY 2020 but it will probably be FY 2021 and FY 2022 before significant momentum and traction is achieved. Accordingly, I think the key issue for the company in the current year will be to manage cash burn. In this regard, Novita raised about $1.8 million via a placement in August to add to cash reserves of about $341K as at 30 June 2019. Further capital will probably be required next year.

The share price has slumped from around 3.0 cents per share early this year to a current level of 1.2 cents. I like the long-term story but this is one for patient investors. The lack of significant sales revenue and evidence of building momentum coupled with the almost inevitable requirement for further capital will keep pressure on the share price in the short to medium term.

 

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
11/09/19PTB$0.70N/AN/A
Date of Report11/09/19ASXPTB
Price$0.70Price TargetN/A
Analyst RecommendationN/A
Sector: Industrials52-Week Range: $0.52 - 0.83
Industry: Aerospace & DefenseMarket Cap: $52.43 million

Source: Commsec

PTB Group (ASX:PTB)

Aircraft engine maintenance

  • Revenue up 27% to $51.5 million
  • EBITDA up 16% to $8.6 million
  • Net Profit up 23% to $4.0 million
  • Dividend 7.0 cps fully franked, up from 5.0 cps.

Another strong result and the fourth consecutive year of growth. A slightly reduced contribution from the main operations in Brisbane was more than offset by increased contributions from the aircraft leasing, International parts and US operations.

During the year, the company completed the financing of four aircraft, increased sales of Rolls Royce aircraft engine parts and increased capacity at its US operations. Late in the year, it also commissioned an engine test cell in Brisbane. Having a test cell in Brisbane will remove the need to send engines to the US for testing thereby both reducing costs and speeding up the turnaround time of an engine overhaul.

All the elements are in place for continued solid growth into FY 2020. In particular, the US operations are well placed to increase its penetration into the local aircraft maintenance market and to handle overflow work from Brisbane.

The current share price of 68.5 cents is well up from around 56 cents at the beginning of the year. The PE based on FY 2019 earnings is only 12 times whilst the dividend yield is 10.2%. Assuming further growth in the current year, these multiples are very competitive.

 

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
11/09/19SWF$0.18N/AN/A
Date of Report11/09/19ASXSWF
Price$0.18Price TargetN/A
Analyst RecommendationN/A
Sector: Financial Services52-Week Range: $0.0056 - 0.18
Industry: Capital MarketsMarket Cap: $29.82 million

Source: Commsec

SelfWealth (ASX:SWF)

Flat fee online stockbroker

  • Revenue up 167% to $2.8 million
  • Net loss down 36% to $3.4 million
  • Cash Burn (cash flow deficit from operations) down 35% $3.2 million

FY 2019 was a breakthrough year for SelfWealth with triple digit growth in all of the key operating indicators; 143% YOY increase in trades, 195% YOY increase in active traders, 125% increase in funds under administration and 126% increase in client cash balances. There is now very strong evidence that the value proposition has been validated, however there is some way to go before the business model is proven.

Whilst considerable momentum has been established, the operating base is still quite low and a considerable increase in scale is required before profitability is achieved. Its first foray into the ETF market has been seeded and a fund is expected to be launched before the end of this calendar year. The launch of this fund is expected to be an important catalyst in taking the business to the next level.

The cash burn is quite high relative to revenue making it difficult to predict how the company will perform financially in FY 2020. We expect strong revenue growth and a reduction in losses, however, some costs may rise to support the marketing and launch of the ETF.

With $2.5 million in cash reserves there is no apparent immediate need for additional capital although I suspect that there is a strong possibility of a raising during this financial year.

The share price has been strong this year and at current levels of 16.5 cents is about double its level at the beginning of the year. The share price will continue to be driven by KPI performance so the numbers have to remain strong.

 

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
11/09/19UCW$0.22N/AN/A
Date of Report11/09/19ASXUCW
Price$0.22Price TargetN/A
Analyst RecommendationN/A
Sector: Consumer Defensive52-Week Range: $0.10 - 0.22
Industry: Education & Training ServicesMarket Cap: $24.38 million

Source: Commsec

UCW (ASX:UCW)

Education and training provider

  • Revenue up 75% to $22.0 million
  • Underlying EBITDA up 11.5 times to $1.7 million
  • Very large increase in net profit to $952K

This strong performance was driven by strong growth (+27%) in student enrolments in the core training business and the full contribution from the IKON higher education business which was acquired in early July 2018. The impact has been markedly improved operating efficiencies and training room utilisation rates resulting in vastly improved margins.

The company reports that student enrolments in the current quarter are much higher than at the same time lats year pointing to another year of strong growth. The priorities are to further integrate the core training business with the IKON acquisition, to further expand training capacity and to expand the core offering.  The company is in growth mode and has also indicated that it is on the lookout for complimentary acquisitions. All indications are that double digit profit growth is expected this year

The share price bounced to 21.5 cents following the result which is up about 19% from the beginning of the year. Whilst the valuation doesn’t look excessive, it will require the delivery of another strong result for support.

 

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
11/09/19VRS$0.058N/AN/A
Date of Report11/09/19ASXVRS
Price$0.058Price TargetN/A
Analyst RecommendationN/A
Sector: Industrials52-Week Range: $0.046 - 0.23
Industry: Engineering & ConstructionMarket Cap: $21.65 million

Source: Commsec

Veris (ASX:VRS)

Australia’s largest surveying group

  • Revenue up 18% to $125.9 million
  • Underlying EBITDA down 42% to $6.5 million
  • Net loss of $40 million including an impairment charge of $34.4 million.

FY 2019 was Veris’ annus horribilis culminating in the large impairment charge. Most of the operating damage appears to have occurred in the Veris surveying business where revenue fell slightly and the operating profit contribution fell by 52%. It looks like margins were savaged by a blow out in costs and poor quality contracts. On the other hand, the IT/communications business performed well and Elton, the consulting business, contributed for a full year compared with only 3 months in FY 2018.

Notwithstanding the poor results, the operating environment and outlook for Veris is very positive with an infrastructure boom well underway and likely to be sustained for the next five years and with spending on cities by all levels of government rising. The challenge for the company is to get its house in order and to position itself to capitalise on the considerable opportunities that are becoming available. Restructuring is underway and a return to profitability is expected in FY 2020.

Not surprisingly the share price has slumped since late last year falling from 21 cents in October to its current level of 6 cents. It will be struggle to get the share price moving upwards in the short term but there is clearly considerable upside should the company turns its performance around.

 

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
11/09/19WHK$0.080N/AN/A
Date of Report11/09/19ASXWHK
Price$0.080Price TargetN/A
Analyst RecommendationN/A
Sector: Technology52-Week Range: $0.040 - 0.16
Industry: Internet Content & InformationMarket Cap: $12.63 million

Source: Commsec

Whitehawk (ASX:WHK)

Cyber security solutions

  • Six Months ended 30 June
  • Revenue up 18$ to US$284K
  • Underlying EBITDA loss down 14% to US$1.16 million
  • Cash Burn (cash flow deficit from operations) US$1.3 million compared with US$1.9 million in the previous corresponding period.

The company is clearly in the very early stages of commercialisation and few conclusions can be drawn from this data. Nonetheless, Whitehawk reports that it has won contracts with a number of US Federal government departments and corporates and has multiple proof of value trials underway. Accordingly, the most recent period is best characterised as being focussed on business development. Since the end of the period, the company has announced that it has invoiced some US$360K from new contract signings therefore revenue for the current six months should be considerably higher than for the most recent period.

At this stage, most revenue appears to be initial fees rather than recurring income which I expect to begin to emerge in 2020 but will only become significant once a solid base of clients has been built.

It is certainly interesting that cash burn fell during the latest six months pointing to good cash management. During the period, the company raised US$2.5 million in new capital via a placement and cash reserves as at 30 June were US$1.9 million. Further capital will probably be required in the new year.

There is plenty of business development activity underway, however, the revenue base is still very small. The expectation is that momentum will quickly build and that revenue will grow sharply over the next year or so. Profitability, however, is till someway off.

After climbing to a new level in May and June, the share price has since returned to the levels at the beginning of the year at around 8 cents. Positive news flow could stimulate price movement, but I think sustainable moves to the next level require a big move forward in revenue.

 

 

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