3 Diversified Stock with Decent Growth Potential - TOY, AV1, ERM

1. Toys”R”Us ANZ Limited (Recommendation: Speculative Buy, Market Cap: ~$156.94 million)

FY21 Result Highlights: Toys ‘R’ Us ANZ Limited (ASX: TOY) operates as a retailer of toys, clothing, and baby products in Australia. Some of its brands include Toy “R” US, Babies “R” US and Hobby Warehouse. One of the important highlights of FY21 was the completion of acquisition of Hobby Warehouse Group (HWG) which includes e-commerce businesses Hobby Warehouse, Toys“R”Us and Babies“R”Us and IT distributor Mittoni. For FY21, the company reported total revenue of $21.8 million and statutory loss after income tax of $5.1 million.

Cash and Debt Balance: As at 31 July 2021, the company had a cash balance of $17.3 million, up from $367k as at 31 July 2020. Further, the company had nil debt on its balance sheet.

Current Ratio Trend (Source: Analysis by Kalkine Group)

Outlook: Looking ahead, the company is focused on expanding and realising its growth ambitions for Toys“R”Us, Babies“R”Us and Hobby Warehouse by identifying suitable business expansion opportunities. Further, the company is focused on reducing extensive delivery delays to its shoppers as couriers operate at levels exceeding capacity limits at times, whilst maintaining staff and public safety.

SWOT Analysis:

Stock Recommendation:

• Over the last three months, the stock has provided a return ~12.50%.
• The stock has a 52-week low and high price of $0.075 and $0.205, respectively.
• Looking ahead, the company is focused on completing the construction of its new 19,650m² warehouse and experience centre facility, which is expected to help the company in reaching the anticipated growth needs in Australia.
• Key Risks: Supply Chain Disruption, COVID-19 Uncertainties, Competition Risk, etc.
• Considering the company’s rising cash balance, expected benefits from new warehouse facility, modest outlook, robust balance sheet, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing price of $0.180, down by ~2.703% as on 26 November 2021.

TOY Weekly Technical Chart, Data Source: REFINITIV 

2. Adveritas Limited (Recommendation: Speculative Buy, Market Cap: ~$65.82 million)

FY21 Result Highlights: Adveritas Limited (ASX: AV1) is mainly involved in providing online and mobile marketing solutions with a focus on maintaining transparency in the digital ecosystem using its proprietary software as a service, TrafficGuard®. For FY21, the company reported rapid increase in its key sales metrics, particularly in H2FY21. At the close FY21, the company had close to 180 paying customers and its annualised revenue was circa $1 million, up 111% since December 2020. Over the year, the company’s freemium subscribers grew by 400% YoY to circa 2,700, providing a large base to convert into paying customers.

Cash and Debt Scenario: As at 30 June 2021, the company had a cash balance of $3.2 million and nil debt in its balance sheet. Post FY21, the company has raised $1.4 million via placements and $3.6 million through the exercise of 36 million options. As a result, the company’s pro forma cash balance as at 30 September 2021 was $8.4 million.

Cash Balance (Source: Analysis by Kalkine Group)

Outlook: Looking ahead, the company’s sales force is focused on maintaining the growth momentum as the company continues to grow its pipeline and convert Freemium subscribers and trial customers into paying customers. Further, the company is focused on converting TrafficGuard trials into paying customers.

SWOT Analysis:

Stock Recommendation:

• Over the last nine months, the stock has corrected by ~19.44% and has provided a positive return of ~51.04% in the last three months.
• The stock is trading lower than the average 52-week price level band of $0.091 -$0.225.
• On a TTM basis, the stock is trading at an EV/Sales multiple of 58.7x, lower than the industry (Software & IT services) median of 75.4x.
• Key Risks: Technology Disruption, COVID-19 Uncertainties, Foreign currency Risk, etc.
• Considering the growing annualised revenue, rise in freemium subscribers. modest outlook, current trading level, valuation on TTM basis, and key associated risks, we give a “Speculative Buy” rating on the stock at the closing price of $0.145, down by ~3.334% as on 26 November 2021.

AV1 Weekly Technical Chart, Data Source: REFINITIV

3. Emmerson Resources Limited (Recommendation: Speculative Buy, Market Cap: ~$37.86 million)

FY21 Result Highlights: Emmerson Resources Limited (ASX: ERM) is currently involved in the exploration of the Tennant Creek Mineral Field (TCMF), one of Australia’s highest-grade gold and copper fields. For the year ended 30 June 2021, the company reported total revenue of $262,527 and net loss of $1.57 million. Due to an increase in legal fees resulting from legal proceeding with TRL Tennant Creek Pty Ltd, the company’s expenses slightly increased to $1.84 million, as compared to $1.82 million in FY20.

Positive Exploration Updates: The first diamond drill hole at Mauretania, Tennant Creek has intersected significant gold intercepts including 3.95m at 57g/t gold, 0.22% bismuth, 20.6g/t silver and 0.23% copper from 207m. At Hermitage Project, the drilling has demonstrated visible copper intersects.

Outlook: In December 2021 quarter, the company is planning to complete the drilling at its 100% owned Hermitage and Edna Beryl projects and Ultra High-Resolution drone magnetic survey over the Southern Project Area at Tennant Creek. With a cash balance of $4.5 million as at 30 September 2021, the company seems well funded to support growth and future exploration programs.

Current Ratio (Source: Analysis by Kalkine Group)

SWOT Analysis:  

Stock Recommendation:

• Over the last one month, the stock has corrected by ~4.93%.
• The stock has a 52-week low and high price of $0.058 and $0.105, respectively.
• On a TTM basis, the stock is trading at a Price to Book multiple of 1.7x, lower than the industry (Basic Materials) of 2.6x.
• Key Risk: Exploration-related Risks, COVID-19 Uncertainties, Commodity Price Risk, etc.
• Considering the company’s decent exploration updates, robust balance sheet, improved current ratio, ongoing exploration programs, valuation on TTM basis, and associated key risks, we give a “Speculative Buy” rating on the stock at the current market price of $0.077 as on 26 November 2021, 1:40 PM (GMT+10), Sydney, Eastern Australia.

ERM Weekly Technical Chart, Data Source: REFINITIV 

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.

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.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.