3 Micro-cap Stocks with Decent Growth Potential ‘Under 20 Cents’ – BYE, MRM, DW8

1. Byron Energy Limited (Recommendation: Speculative Buy, Market Cap: ~$161.24 Mn)

Rise in September Quarter Revenue: Byron Energy Limited (ASX: BYE) is an independent oil and natural gas exploration and production company with working interests in a portfolio of leases in federal and state waters.

• For FY20, the company reported net production of 394,000 barrels of oil and 0.8 billion cubic feet of gas. The company’s net revenue for FY20 stood at US$21.4 million, down from US$31.32 million in FY19, mainly due to lower realised oil and gas prices and lower production volumes. Further, the company reported a net profit of US$68,348, down from a net profit of US$5,718,988 in FY19, primarily due to lower net revenue partly offset by lower impairment charges. For the September 2020 quarter, the company reported production of 99,281 barrels of oil and 529,560 mmbtu of gas. For the quarter, the company reported net revenue of US$5.1 million, up from US$3.8 million in the June 2020 quarter, driven by oil and gas sales from the SM58 G1 well, higher production from SM71 and higher realised oil and gas prices.
• Debt Scenario: As at 30 September 2020, the company had borrowings of US$22 million. For FY20, the company’s debt to equity multiple stood at 0.29x, lower than the industry median of 0.42x.
• Key Metrics: For FY20, the company’s gross margin stood at 51.2%, higher than the industry median of 40.0%. Further, the company’s EBITDA margin stood at 53.9%, higher than the industry median of 33.9%. Moreover, the company’s current ratio for FY20 stood at 2.01x, higher than the industry median of 1.08x, demonstrating that the company is well equipped to pay its short-term obligations.
• Outlook: Looking ahead, the company is focused on minimising its overheads and is determined to adapt current circumstances. With several risk management initiatives undertaken during 2020, the company is building a strong foundation for significant growth in 2021.

A Pictorial Presentation of Key Ratios:

SWOT Analysis:

Stock Recommendation:

• Over the last three months, the stock of BYE has corrected by 45.76% and is currently inclined towards its 52-weeks low price of $0.105, offering decent opportunity for accumulation.
• On the technical analysis front, the stock has a support level of ~$0.131 and resistance level of ~$0.192.
• BYE, as a low-cost high-margin producer, is well placed to cater the growing demand in the US. With its approach of locking in a portion of production revenue, to better predict future cash flows, the company seems well placed to plan the level and timing of future drilling and development.
• Key Risks: Oil price volatility, cost overruns associated with drilling, the regulatory risk associated with changing political environment, and funding risk.
• Considering the company’s decent production performance in Q1FY21, expected recovery in US demand, award of an additional South Marsh Island lease (SM66), and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.160, up 3.225% as on 11 December 2020. 

2. MMA Offshore Limited (Recommendation: Speculative Buy, Market Cap: ~$118.57 Mn)

Decent Underlying performance in FY20: MMA Offshore Limited (ASX: MRM) is one of the largest marine service providers in the Asia Pacific region with specialisation in providing high-specification vessels and a comprehensive suite of marine and subsea services to the offshore energy and wider maritime industries.

• For FY20, the company reported revenue of $273.0 million, up 14.1% on the prior year. Further, the company reported underlying EBITDA of $48.9 million, up 76% on the prior year. The company’s underlying results were driven by the increase in the provision of integrated services to the customers on the company’s MPSV and PSV fleet, which increased the margins. Over the year, the company’s vessel business performed well with high utilisation on its more specialised vessels for the majority of the financial year.
• Debt Scenario: As at 30 September 2020, the company’s net debt stood at $176.6 million. Following the completion of the recent equity raising and debt restructuring, the company’s net debt will be reduced to $86.5 million. For FY20, the company’s debt to equity multiple stood at 1.24x, higher than 0.88x in FY19.
• Outlook: The company has a solid base of long-term contracts which underpins the company’s future revenues. Looking ahead, the company intends to leverage its marine skills to expand into adjacent marine sectors such as Offshore Wind, Government Services and Infrastructure. In FY20, the company’s gross margin stood at 19.6%, higher than 0.7% reported in FY19.

A Pictorial Presentation of Key Financials:

SWOT Analysis:

Stock Recommendation:

• Over the last one month, the stock has corrected by 19.40% and is currently inclined towards its 52-week low of $0.023, offering a decent opportunity for accumulation.
• On the technical analysis front, the stock has a support level of ~$0.025 and resistance of ~$0.46.
• Based on the company’s forward order book and contract positions, the company expects its FY21 operating EBITDA to be in the range of $30 million -$35 million. Further, the company is targeting to return to stronger and more diversified revenue growth in FY2022 and beyond.
• Key Risks: Risk of Oversupply of Vessels and Subsea Services, Downturn in Offshore Oil and Gas Activity Levels.
• Considering the company’s decent underlying performance in FY20, recently conducted equity raising and debt restructuring, current trading level and ongoing focus on repaying its debt, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.033 as on 11 December 2020.

3. Digital Wine Ventures Limited (Recommendation: Speculative Buy, Market Cap: ~$63.13 Mn)

Decent Revenue Growth in Q1FY21: Digital Wine Ventures Limited (ASX: DW8) is focused on identifying and investing in technology-driven ventures that have the potential to disrupt and digitally transform segments within the global beverage market. The company’s cornerstone investment is WINEDEPOT, a cloud-based SaaS technology platform that empowers direct-to-market sales.

• During the September 2020 quarter, WINEDEPOT processed a total of 12,230 orders, up 58% on the previous quarter. Over the quarter, WINEDEPOT shipped 22,470 cases, up 63% on previous quarter. WINEDEPOT had expanded its addressable market, establishing a beachhead presence in the country via the appointment of Ashton Ireland as Business Development Manager in New Zealand. During the quarter, WINEDEPOT reported total revenue of $400,277, representing a growth of 48% on the previous quarter. In the month of November, WINEDEPOT continued its strong momentum and shipped 10,570 cases, up 8% on the previous month. For FY20, the company had reported total revenue of $566,141K, up 139% on the previous year. Due to the launch and operation of the WINEDEPOT business and closure of the operational side of the Group’s business in China, the company incurred a net loss of $2.036 million in FY20.
• Debt Scenario: As at 30 June 2020, the company had no debt on its balance sheet. Over the last five years, the company’s debt to equity multiple has remained nil.
• Outlook: WINEDEPOT has recently announced its plan to expand its addressable market by servicing corporate and business buyers. To accelerate WINEDEPOT growth, the company made a strategic acquisition of Wine Delivery Australia Pty Ltd (WDA), a South Australian based fourth-party logistics provider servicing the wine industry. WDA acquisition will result in synergies in freight costs, sales & marketing, customer service, account management, merchandise procurement and general operation.

A Pictorial Presentation of Key Results:

SWOT Analysis:

Stock Recommendation:

• The stock of DW8 has corrected by 23.63% and 6.66% in the past three months and one-month period.
• On the technical analysis front, the stock has a support level of ~$0.032 and resistance of ~$0.062.
• Looking ahead, the company expects WINEDEPOT to witness further upside from WDA’s winePod business. WINEDEPOT plans to open its Marketplace up to corporate, SMEs and other registered businesses – on a “Costco-like” membership model.
• Considering WINEDEPOT’s recently announced plans of international expansion, expected benefits from WDA’s acquisition, decent operational and financial performance, and healthy balance sheet, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.043, up by 4.878% as on 11 December 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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