Latest Research

Matrix Composites & Engineering (MCE) - Leveraging Existing Expertise

Matrix Composites & Engineering LogoA pull back in MCE’s share price nearer to our $0.47 DCF valuation gives us cause to upgrade to a HOLD (prior SELL). We note that significant forecasting risk remains as the Company is in the infancy of its diversification away from the weak riser buoyancy market. However, we are encouraged by early success in penetrating new markets with LGS, growing SURF’s revenue contributions and securing work in civil & infrastructure, where the opportunity in bulk freight is particularly appealing.

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CTI Logistics Limited (CTI) - Going National

CTI Limited LogoCLX has transformed itself from a largely WA-based business to a national logistics and transport provider. After the acquisition of Jayde in the last half, CLX expects to generate ~40% of its revenue from the eastern states. From this platform we expect last half’s adjusted EBITDA of $9.5m (slightly below our $9.9m forecast) to improve over time as the WA economy picks up steam and national organic and acquisitive opportunities emerge. Our valuation drops slightly to $1.50 (prior $1.60) on amendments to forecasts, but is still well ahead of the current share price. We see value and maintain our buy call.

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Decmil (DCG) - On Your Marks

Decmil LogoWhile DCG’s 1H18 revenue of $141m and EBITDA of $1.3m did little to excite, the outlook commentary made for good reading. Work in hand and a large pipeline supports a much stronger performance in 2H18 and FY19. A combination of growing revenue and cost control should prove positive for margin in coming periods. We maintain a buy call on the compelling macro environment and an unchanged valuation of $1.40.

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Austal (ASB) - US Delivers

Austal LogoEBIT of $29m in 1H18 was as expected, and similar to the prior two halves. We expect a similar result in the current half. However, our focus is on FY19 and beyond. Revenue consistency and steady 6-8% shipbuilding margins in the US, combined with an expected uplift as commercial work drives greater workloads through the Australian and Philippines shipyards, should see strong growth next financial year. With medium term performance largely underpinned by a $3.4b order book and large longer-term opportunities, we remain positively disposed. Buy maintained on a $2.10 blended valuation.

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Gold Sector - The More You Drill The More You Find

Argonaut LimitedGold prices have risen by 10% in AUD terms and 7% in USD terms in FY18YTD. Funds flow has been predominantly into grass roots explorers evident in the surge of the ASX Small Resources (XSR) index which has risen by 36% FY18 YTD vs the ASX Gold Index (XGD) up just +14% FY18YTD. Equity valuations of the mid-tier producers continue to look stretched and we struggle to identify significant value. Emerging developers have recorded only incremental gains which presents an opportunity for investors looking for companies that screen cheaply with short timelines to production. Our key picks include Regis Resources (RRL) in the producers and Dacian Gold (DCN), Gascoyne Resources (GCY), Gold Road (GOR) and West African Resources (WAF) in the emerging developers. We also identify the next tier of potential development plays including Explaurum (EXU), Genesis Minerals (GMD) and Alice Queen Ltd (AQX) who look to make the transition into production. Catalyst Metals (CYL) is also attractive with a belt scale play in proximity to Kirkland Lake (KLA) Fosterville operations.

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