Three Diversified Stocks Under 20 Cents Report with Decent Long-term Growth Potential -HRL, CLT, TOY

1. HRL Holdings Ltd (Recommendation: Speculative Buy, Market Cap: ~$42.51million)

HRL Holdings Ltd (ASX: HRL) mainly provides diversified environmental and laboratory services with offices and laboratory facilities throughout Australia and New Zealand. The company’s services include analytical chemistry laboratory testing, industrial hygiene and geotechnical testing, among others.

1HFY22 Result Insights: During the half-year ended 31 December 2021, the company recorded revenue amounting to $18.0 million, reflecting a rise of 10% over pcp. HRL achieved said growth in spite of the constrained business conditions. Due to weak dairy and honey seasons and COVID-19, the company experienced a fall of 45% in Underlying EBITDA to $2.0 million. The company recorded operating cash flows of $0.8 million as compared to $3.8 million in 1HFY21 due to weaker trade and investments in operational capability.

Cash and Debt Position: At the end of 1HFY22, the company had cash of $0.85 million and recorded total debt (borrowings and lease liabilities) of $6.55 million. The company ended 1HFY22 in a net debt position of $3.5 million. During 1HFY22, the company reported a current ratio of 1.08x, as compared to the industry median of 0.95x.

Current Ratio Trend (Source: Analysis by Kalkine Group)

Outlook: HRL believes that its business growth in the upcoming 2-3 years would be backed by the continued organic expansion of services and market share gains for the Laboratory segment in addition to future acquisition opportunities. HRL expects to grow revenue to $45-50 million (excluding JV operations) at industry leading margins by 2024. In addition, HRL is optimistic that FY2022 would develop the foundation for its 3-year strategy.

SWOT Analysis:

Stock Recommendation:

• During the past three months, the stock has corrected by ~16.67% and is trading at par to its 52-week low of $0.086, offering a decent opportunity for accumulation.
• HRL has an EV/Sales multiple of 1.4x against the industry median (Professional & Commercial Services) of 2.0x on a TTM basis. Thus, it seems that the stock is undervalued at the current trading levels.
• Key Risks: COVID-19 Led Uncertainties, Stiff Competition, Shortage of Labour etc.
• Considering the growth in revenue, expected organic revenue growth, decent outlook, current trading level, valuation on a TTM basis, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing market price of $0.086 as on 25 February 2022.

HRL Daily Technical Chart, Data Source: REFINITIV 

2. Cellnet Group Limited (Recommendation: Speculative Buy, Market Cap: ~$9.50 million)

Cellnet Group Limited (ASX: CLT) is engaged in the sourcing of products and the distribution of market leading brands of lifestyle technology products, which include a mobile phone, gaming, tablet and notebook/hybrid accessories into retail and business channels in Australia and New Zealand.

1HFY22 Financial and Operational Highlights: During 1HFY22, the company recorded revenue amounting to $43.67 million as compared to $56.46 million in 1HFY21. Online sales for the half-year rose by 21% over pcp. Despite various ongoing retail headwinds due to COVID-19 restrictions in Australia and New Zealand, the company posted an EBITDA of $1.6 million in 1HFY22. CLT recorded a net profit before tax of $0.20 million, which included a non-cash impairment expense of $0.61 million. The company signed a strategic sourcing arrangement with Queensland based Renewable Mobile Group, which provides CLT with access to locally refurbished iPhones, iPads, and other mobile devices for supply into retail and online channels, including Reebelo, Hulii, Kogan and Amazon.

Cash Position: During 1HFY22, CLT declared an interim dividend of $0.003 per share which resulted in a payment of $730,784 inclusive of withholding tax to shareholders. At the end of 1HFY22, the company had a cash balance of $6.1 million and net tangible assets per share of 8.4¢ as on 31 December 2021.

Current Ratio Trend (Source: Analysis by Kalkine Group)

Outlook: Looking forward, the company would continue to focus on accelerating the execution of its growth strategies throughout gaming, refurbished devices, mobile accessories and online distribution. In addition, the company is optimistic about its outlook on the back of momentum from the new iPhone launch and rising consumer demand for new gaming consoles.

SWOT Analysis:

Stock Recommendation:

• During the past one month and three months, the stock has corrected by ~37.49% and ~41.17% and is trading at near to its 52-week low level of $0.036, offering a decent opportunity for accumulation.
• CLT has EV/Sales multiple of 0.2x against the industry median (Specialty Retailers) of 1.1x on a TTM basis. Thus, it seems that the stock is undervalued at the current trading levels.
• Key Risks: COVID-19 Led Uncertainties, Stiff Competition, Foreign Currency Risk, etc.
• Considering the rising online sales, strategic sourcing arrangement, decent liquidity position, current trading level, valuation on TTM basis, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing market price of $0.040, up by ~2.564% as on 25 February 2022.

CLT Daily Technical Chart, Data Source: REFINITIV

3. Toys"R"Us ANZ Limited (Recommendation: Speculative Buy, Market Cap: ~$107.73 million)

Toys“R”Us ANZ Limited (ASX: TOY) is based out of Australia, which encourages exploration, creativity and living life more fully through the enjoyment of toys and hobbies.

Business Update for November 2021: During the period ended 30 November 2021, the company witnessed continued sales order volume growth over pcp, evident by the growth of 139% in invoiced sales revenue (unaudited) of $4.09 million. TOY revenue of $4.6 million as compared to $2.0 million in November 2020. The said revenue growth was backed by increased average order values through Toys“R”Us combined with higher order volumes. In addition, TOY witnessed a rise of 84% in number of orders to 12.1k with an average order value of $121.10, reflecting a rise of 30% over pcp.

FY21 Operational and Financial Highlights: During the year ended 31 July 2021, TOY posted proforma revenue amounting to $48.2 million against $24.6 million in FY20. In addition, proforma gross profit for the year amounted to $11.1 million as compared to $3.5 million in FY20. The company closed FY21 with a cash balance of $17.3 million, representing an increase of 295% over PcP. In addition, the company had nil debt at the end of FY21.

Revenue & Gross Profit Trend (Source: Analysis by Kalkine Group)

Outlook: Looking forward, the company is currently focused on executing important future goals, which include construction of the new 19,650 m² e-commerce fulfilment facility in Victoria and business expansion into the United Kingdom. For FY22, the company is planning a soft-launch of Babies“R”Us as an independent e-commerce platform. In addition, strong order growth in October and November 2021 periods provides optimism for decent revenue growth.

SWOT Analysis:

Stock Recommendation:

• During the past one month and three months, the stock has corrected by ~13.33% and ~27.77% and is trading below its 52-week low-high average of $0.075 - $0.205, respectively.
• On a TTM basis, the stock is trading at a P/BV multiple of 1.9x against the industry median (Consumer Cyclicals) of 2.1x. Thus, it seems that the stock is undervalued at the current trading levels.
• Key Risks: COVID-19 Led Uncertainties, Stiff Competition, Credit Risk, Forex Headwinds, etc.
• Considering the rising sales, increasing orders, decent liquidity position, nil debt-to-equity ratio, current trading level, valuation on TTM basis, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing market price of $0.130, up by ~4.0% as on 25 February 2022.

TOY Daily Technical Chart, Data Source: REFINITIV

Note, markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

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. 

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.

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.