My five stocks under 50 cents
It’s time for another group of ‘5 Under 50 cents’ stocks – but before I do, let’s check how the March 2020 group are going.
- AMA Group (AMA, 52 cents) – now 61 cents
- Aurelia Metals (AMI, 40 cents) – now 49.5 cents
- Immutep (IMM, 33 cents) – now 18.5 cents
- BSA (BSA, 36 cents) – now 29.5 cents
- Cooper Energy (COE, 48.5 cents) – now 33.5 cents
A few hits, a few misses, but that’s par for the course down in this end of the market. Here’s the latest group of nominations:
1. Ashley Services Group (ASH:ASX)
Market capitalisation: $58 million
Three-year total return: +75.5% a year
Analysts’ consensus target price: 49 cents
Listed in 2014, Ashley Services Group is integrated provider of training, recruitment and labour hire services, with 21 offices across Australia.
In labour hire, Ashley operates under three brands:
- Action Workforce (the founding company, established in 1968) which provides trained and experienced staff to the industrial sector, particularly the warehouse, logistics, FMCG (fast-moving consumer goods), food, pharmaceutical, manufacturing and trades industries.
- Concept Engineering, a trades and technical labour hire and recruitment business that specialises in electrical and mechanical, rail, manufacturing, construction, industrial and process workers.
- CCL Group, a supplier of contract labour in Victoria (acquired August 2019), which focuses on the infrastructure, building and civil construction sectors, and is also a major supplier of traffic management services to the construction industry.
In recruitment, Ashley Services Group provides white-collar recruitment services (permanent, temporary and contract placements) through its Concept Recruitment Specialists arm, in partnership with The Blackadder Recruitment Company, which specialises in the government sector.
In training, Ashley operates six Registered Training Organisations (RTOs) that serve a wide range of industries.
In FY20, Ashley grew revenue by 17.1%, to $336.8 million – as expected, after the CCL Group acquisition – while net profit slid 6.5% to $5.1 million. Adjusted for the impact of the new accounting standard for leases, AASB 16, net profit actually rose by 1.6% to $5.5 million. Operating cash flow was a record for the company at $14.1 million, and Ashley ended the financial year with a robust balance sheet, with zero borrowings and significant headroom under its unused borrowing facilities.
Ashley paid a final dividend of 2.7 cents, which was also the full-year dividend after no interim dividend was declared earlier in the year. The dividend was the same as last years.
The company has been shielded from the effects of the COVID pandemic to a large extent, mainly because Action Workforce has benefited from a high exposure to the supermarket and related supply-chain sector, and both CCL Group and Concept Engineering has been supported by its involvement in major Victorian government infrastructure projects, which have continued through the COVID period.
Training has been affected a bit more, but Ashley said in its full-year result that business so far in the 2021 financial year was “encouraging,” with Queensland and Western Australia returning to pre-COVID student activity and Victoria is holding the line with a move to a greater mix of distance learning.
At 40.5 cents, Ashley trades on an historical yield of 6.67% fully franked, or 9.5% grossed-up, and an undemanding historical price/earnings (P/E) ratio of 12.5 times earnings.
2. Freelancer (FLN:ASX)
Market capitalisation: $222 million
Three-year total return: 2.1% a year
Analysts’ consensus target price: 95 cents (Thomson Reuters)
Freelancer.com is now the world’s largest freelancing and crowdsourcing marketplace, by total number of users and jobs posted. Since acquiring Escrow.com in 2015, which specialises in secure online payments, the company has moved into the e-commerce space providing clients with a secure way to buy or sell products. The extent to which this is a driver for FLN was shown in July when Freelancer announced a partnership with eBay Motors, which is using Escrow.com to give buyers added security when trading used vehicles and vehicle parts online.
In the main business, Freelancer posted an impressive half-year result (it is a calendar-year reporter) as it staked a case to be one of the companies benefiting from COVID-19. The June half saw a flood of young people joining the crowdsourcing marketplace website in the midst of the pandemic, turning to the platform to try to sell their skills. Since the pandemic began, Freelancer says almost half (48.4%) of the site’s new signups were people aged between 18 and 24.
In the June half, Freelancer recorded a 53% increase in new paying employers and a 39% increase in new funded jobs. There were 1.1 million jobs and 5 million users added to the site in the half, taking the number of registered users to 46.7 million and the number of jobs arranged to 18.1 million. The company says 83% of projects posted on Freelancer.com receive bids in less than 60 seconds, with the average project receiving 45 bids.
Freelancer’s revenue is driven by users posting jobs. For employers, it’s free to post a project, free to review bids, free to talk and review samples – employers pay a 3% project commission when a project is awarded and accepted. For freelancers, it’s free to view projects posted, free to bid on projects, free to talk to employers and provide samples of work – freelancers pay a 10% project commission when a project is awarded and accepted. There are also paid membership plans. Other value-added services include project upgrades, crowdsourcing contests and upgrades, bid upgrades, transaction fees, certification fees and advertising. Freelancer’s managed services team also helps companies recruit the top freelancers that take on their work.
Freelancer’s revenue rose by 3%, to $29.5 million, in the June half, but the company reported a net loss of $1.1 million. In 2019, the net loss was $1.59 million. After reaching a peak of $1.80 back in 2015, FLN is now back below its 50-cent issue price from when it listed in November 2013. But it’s putting the most runs on the board that it ever has.
3. Atomo Diagnostics (AT1:ASX)
Market capitalisation: $249.6 million
Three-year total return: n/a
Analysts’ consensus target price: 65 cents (Thomson Reuters)
Issued at 20 cents in its initial public offering (IPO) in April this year, Atomo Diagnostics hit the ASX screens at 45 cents and went as high as 56 cents in its first week. The reason for the enthusiasm – amid the COVID pandemic – was that Atomo Diagnostics is a global leader in the design of medical devices for blood-based rapid testing for professional use and self-testing. Atomo’s innovative point-of-care rapid diagnostic test (RDT) platform is specially designed for self-testing, simplifying procedures, mitigating common user errors and improving test performance. The patented devices make testing procedures simpler and boost the usability for untrained self-testers as well as professional users.
The company’s Galileo HIV self-test already has regulatory approval in Australia, the EU and the UK and is prequalified by the World Health Organisation (WHO). Atomo also sells a malaria test. Having that technology platform meant that Atomo was able to pivot quickly to COVID and create a rapid blood test that can detect the presence of COVID-19 antibodies. It can deliver results in just 15 minutes.
The test is ‘CE Marked’ for professional use for COVID-19 testing in Europe, meaning it has approval for sale across the Eurozone. French diagnostics company NG Biotech has ordered
1.37 million of the tests. Australia’s Therapeutic Goods Administration (TGA) followed suit with regulatory approval for sale in the US. The Atomorapid COVID-19 test is now being jointly manufactured by Atomo and NG Biotech in France.
In July, the amended Galileo rapid diagnostic test device received an Emergency Use Authorisation (EUA) by the US Food & Drug Administration (FDA). Atomo has partnered with US-based Access Bio Inc. to supply the device into the US. Products being commercialised under this agreement include a COVID-19 rapid antibody test for professional use and a COVID-19 rapid antibody test for self-test use.
Once relevant authorisations and approvals have been obtained, the kit will be co-branded by Access and Atomo for launch in the US, Canada and Mexico. Access will be the manufacturer and will retain non-exclusive rights to sell the products to regions excluding Europe, Australia and New Zealand and South-East Asia where Atomo already has contracts in place. Atomo plans to roll-out out its products globally in both the HIV and COVID-19 markets – some heat coming out of the share price since the initial frenzy could give a good entry point.
4. Intega Group (ITG:ASX)
Market capitalisation: $131 million
Three-year total return: n/a
Analysts’ consensus target price: 49 cents
Spun off from parent Cardno in October 2019, engineering services company Intega Group is a quality testing and measurement business that provides a range of services, including construction materials testing, sub-surface utility engineering, environmental testing, quality assurance for energy companies, geotechnical engineering and owners’ representative services, which ensures that the quality requirements of a build meet the agreed specifications and regulations for a project. The business operates in Australia, the US, Canada and New Zealand.
Intega said in its first results, for the year ended June 2020, that revenue of $452 million was up 8.2% on the prior year, while net profit was better-than-expected, up 22.6% to $5.2 million (ITG withdrew its earnings guidance in March on the back of COVID uncertainty).
The company said it had begun FY21 with a strong balance sheet and an increased backlog of work – its backlog swelled by 25.5% to $357.8 million as at June 30, mainly due to large infrastructure project wins in the Americas. At the time of the result – August 2020 – ITG said it expected FY21 trading to be ahead of FY20.
It said it expected continued organic growth in the US driven by the need for infrastructure investment throughout the United States, while in Asia-Pacific, it expected business development and marketing to replace projects nearing completion in its key operating regions, backed by expansion of niche service lines through acquisition.
There wasn’t a dividend and analysts don’t expect one in FY21, either.
House broker Morgans has a target price of 50 cents on Intega, while Thomson Reuters’ collation of analysts’ target prices is just 1 cent below that.
Morgans believes Intega Group’s FY20 earnings guidance of $30m-$31m is a good outcome given the current environment and the analyst expects lower growth in FY21 due to expected delays in large projects, but has growth bouncing back in FY22. The company has flagged a backlog of work although Morgans believes there is a risk some of this project work will be deferred.
5. Archer Materials (AXE:ASX)
Market capitalisation: $107 million
Three-year total return: 119.4% a year
Analysts’ consensus target price: n/a
Speculators love Archer Materials, which is the only ASX stock working on quantum computing, an area of computing technology based on the principles of quantum theory, which explains the behaviour of energy and material on the atomic and sub-atomic levels. As such, quantum computing moves away from the binary nature of classical computing. Current computers manipulate individual bits, which store information as binary 0 and 1 states, quantum computers leverage quantum mechanical phenomena to manipulate information, using ‘quantum bits,’ or ‘qubits’.
Quantum computing could potentially be far superior to classical computing. It
could transform medicine, break encryption and revolutionise communications and artificial intelligence, among other things. The big problem with quantum computing is that it is very fragile. Quantum computers have to be kept isolated from all forms of electrical interference, and chilled down to close to absolute zero.
Archer Materials is developing a unique carbon-based qubit material that has the potential to enable chip operation at room-temperature, which would be a huge breakthrough – it could potentially allow quantum computing to be used in everyday electronic devices. It sounds like rocket-science stuff, but Archer’s intellectual property and expertise in nanotechnology, materials chemistry, and quantum physics does appear capable of overcoming what are considered the big barriers to quantum computing adoption.
Archer’s computing chip technology is called 12CQ, and the company has patent applications for it in the US, Australia, Japan, South Korea, Hong Kong, China and Europe. Archer’s 12CQ chip is a disruptive quantum computing technology and the company intends to develop the chip to be directly sold.
In May, Archer struck a quantum computing partnership with IBM, to join the computing heavyweight’s invitation-only global IBM Q Network as an ecosystem partner, a group of the very best organisations at the forefront of quantum computing.
Archer is not just an all-in quantum computing play – it is also developing its graphene bio-sensor technology that is capable of complex detection of diseases. Archer plans to develop commercial prototypes of its in-vitro diagnostic bio-sensing devices by assembling and testing proprietary graphene-based componentry capable of enabling rapid multi-disease detection and device integration.
The company has also developed a set of new graphene materials that can be directly applied for enhanced bio-sensing and their processing into biocompatible inks that can be printed using inkjet printers.
Archer is exciting, but it’s a long way from profitability. Investors in Archer have to watch news flow closely and monitor the quarterly levels of cash. At June 30, AXE was cashed-up with a healthy $8.1 million, after its share purchase plan (SPP) launched in May. At 60 cents a share, it was over-subscribed. Archer sought $3 million but received applications for $6.4 million worth of shares and accepted them all.