With the effects of the Coronavirus Crash still washing through the share market, there are plenty of stocks picking up the pieces and getting back to business – but with a share price well down on where it once was. Here are four stocks that find themselves down below $1 but show all the ingredients necessary for a rebound out of measured-in-cents territory.
1. Atomos (AMS, 64 cents)
Market capitalisation: $119 million
Analysts’ consensus valuation: n/a
Atomos is an Australian tech company that is a global leader in its niche of digital video technology: the company’s products connect to cameras and allow film and photography creators to edit, enhance and upload the content.
Atomos’ big opportunity is in democratising the production of high-quality video content – it says its product portfolio addresses a US$10 billion ($15.4 billion) market.
The company’s products give content creators a faster, higher-quality and more affordable production system. Atomos is a “prosumer” company, because it sells into the professional end of video content creation, as well as the consumer end. It says it has three major markets: Entertainment, which is production companies producing high-quality content for TV, cinema and streaming platforms; Pro Video, which is advertising, events, corporate, broadcast and education; and Social, which is people creating and sharing video content on social media platforms.
In particular, the extra capabilities that Atomos’ range brings to professional film creators has made it a ubiquitous name in this field around the world, with product lines dating from the original Ninja (introduced in 2010), the Ninja Blade, Ninja Star, Inferno and Shogun products, the latest of which is the Shogun 7 on-camera monitor/recorder that allows the filmer to see how the content will look on the audience’s TVs: Shogun 7 is a portable master recording and production station.
Atomos is in this group of stocks because all investors need tech growth exposure; and Atomos has it in spades. I would rather it hadn’t surged 21% on Friday, but as stocks rebound from the Coronavirus crash, you can’t expect to find bottoms all the time. The peak price of $1.73 in 2019 looks, in hindsight, a bit frothy too soon – Atomos was floated at 41 cents in December 2018 – but AMS is a profitable company that is a huge name in a growing field.
2. MotorCycle Holdings (MTO, 82 cents)
Market capitalisation: $51 million
Analysts’ consensus valuation: 93.5 cents (Thomson Reuters), $1.24 (FN Arena)
MotorCycle Holdings, which runs 30 motorbike dealerships and has 11% share of the Australian market, became a market darling after floating at $2 in April 2016. The stock cruised to as high as $5.22 in November 2017, but the gloss came off the duco as investors realised that the new motorcycle sales across the industry were entering a slide, on the back of the drought in rural areas and traditional buyers cutting back on discretionary spending in a weaker economy.
Before Covid-19, in January, CEO David Ahmet said he felt that the three-year slide in new motorcycle sales across the industry was close to hitting a bottom. For the half-year ending December 31, 2019, MTO’s revenue rose by 3.1%, to $178.2 million, while motorbike sales edged 3.5% higher, to 10,198. Of these, new bike sales were up by 1%, to 5,206, but used bike sales were much stronger, up 6.2% to 4,992. The company’s Harley-Davidson sales jumped by 15%, boosting revenue from new motorbike sales by 4%, and gross profit 27%. But net profit slipped by 8%, and the company did not pay an interim dividend, keeping the money for acquisition opportunities.
As with virtually everything in the discretionary spending space, it is difficult to know how motorbikes will fare coming out the other side. The pandemic has affected MTO’s sales, but “due to the uncertainty of this trend and the duration of these impacts we are unable to provide financial guidance at this time” – which is understandable. But time spent in lockdown and isolation might just have strengthened the dream for many people, of getting on the bike and blowing-out stress with a long ride. And the widespread rains will help agricultural demand.
At 82 cents, MTO trades on a historical price/earnings (P/E) ratio of 9.7 times earnings – and the forecast P/Es in the market are well below that, if forecasts mean anything in the current market. MotorCycle Holdings has been a sound dividend payer, but has now passed on two consecutive six-month dividends, so that has to be factored-in to a total return decision. But at these levels, MTO looks quite capable of returning to a three-digit share price.
3. Resolute Mining (RSG, 95 cents)
Market Capitalisation: $1 Billion
Analysts’ consensus valuation: $1.305 (Thomson Reuters), $1.25 (FN Arena)
Down from $2 in August, Africa-focused gold miner Resolute looks to be very good value below $1, after a very solid quarter in March 2020. Resolute owns and operates three gold mines in Africa – Syama in Mali, Mako in Senegal and Bibiani in Ghana – and the mines produced more than 110,000 ounces of gold during the March 2020 quarter, which was a record quarterly production for the company. Syama and Mako accounted for the lion’s share, generating nearly 100,000 ounces of the quarterly production, with Syama producing 57,531 ounces of gold at an all-in sustaining cost (AISC) of $US1,083 an ounce (A$1,706) and Mako producing 42,186 ounces at an AISC of $US694 an ounce (A$1,093).
In April, Resolute Mining sold its Ravenswood mine in Queensland, which has operated for 15 years, to a consortium comprising of resources private equity fund EMR Capital and Singapore-listed company, Golden Energy and Resources (GEAR). Resolute will receive cash proceeds of up to $300 million comprising $100 million worth of upfront value, up to $50 million linked to the average gold price over a four-year period, and up to $150 million linked to how Ravenswood performs for EMR as an investment.
These developments – plus excellent results from near-surface exploration drilling programs at satellite deposits north and south of Syama, which have given high-grade oxide gold intercepts, and boosted Resolute’s confidence in extending overall mine life – have Resolute looking fairly robust. FY 2020 guidance (Resolute is a calendar-year reporter) is for 430,000 ounces of gold production, at an AISC of US$980 an ounce ($1,519). This excludes Ravenswood.
The main caveats are that margins are lower than RSG’s peers, and the fact that the sale of Ravenswood means that Resolute is solely African-based, which increases the political risk – for example, Mali, home of the company’s main operation is plagued by jihadi terrorism. The French Army is working with the Malian government to pacify the country, but Resolute readily admits that terrorist risk has increased, and it continues to take all the safety measures that it can.
4. Starpharma (SPL, 96.5 cents)
Market capitalisation: $360 million
Analysts’ consensus valuation: $1.73 (Thomson Reuters), $1.75 (FN Arena)
Biotech Starpharma is commercialising products based on its proprietary dendrimer technology: the company holds more than 100 granted dendrimer patents covering a range of classes of this type of molecule. There are two main programs at the moment, sexual/female health, and drug delivery.
In the sexual/female health field, Starpharma’s VivaGel product is based on its proprietary dendrimer SPL7013, astodrimer sodium, a man-made nanoscale compound that is anti-viral, and blocks bacteria. The VivaGel technology has gone into applications such as the treatment and prevention of bacterial vaginosis (BV), prevention of sexually transmitted infections (STIs) and as an anti-viral coating for condoms.
Not surprisingly, having a successful anti-viral product – which is also effective against diseases such as HIV, herpes, hepatitis B and the Zika virus – Starpharma put SPL7013 through lab tests against SARS-CoV-2 virus, the coronavirus that causes COVID-19. Melbourne-based 360Biolabs tested SPL7013 on the live SARS-CoV-2 virus, and SPL reported last month that the lab found that its compound had “significant activity” against the virus. It was tested in comparison to Gilead’s compound remdesivir, which is considered a leading candidate for the treatment of COVID-19 and is in human clinical trials. SPL reported that that it was “the best performing test compound against SARS-CoV-2 in the laboratory’s assay to date.” SPL is snow talking to regulators about what kind of product it could produce using the compound, that could be effective against the virus.
The other main application for Starpharma’s dendrimers is to enhance the properties of other drugs: this approach is known as “drug delivery” because it is about working to ensure that the right amount of the drug is delivered to the right part of the body at the right time. Starpharma’s dendrimer drug delivery technology platform, known as DEP, has three products – DEP docetaxel, DEP cabazitaxel and DEP irinotecan – in clinical development in patients with solid tumours. Starpharma’s partnered DEP programs include a multi-product DEP licence with British-Swedish pharma giant AstraZeneca, which involves the development and commercialisation of two novel oncology compounds, with potential to add more: in June last year Starpharma signed a Development and Option agreement with AstraZeneca for a DEP version of one of AstraZeneca’s major marketed oncology medicines.
Earlier this month, SPL completed the first phase of an anti-cancer clinical trial with some strong results: the trial tested the company’s DEP irinotecan treatment against colo-rectal, breast, and pancreatic cancers. According to Starpharma, its treatment showed some positive tumour-shrinking results and fewer severe side-effects.
Starpharma is picking up interest because of its COVID-19 news – condoms that fight coronavirus is as good a news angle as any – but taken all together, its technology is doing plenty of interesting things, and the stock looks like it probably won’t stay under $1 for much longer.
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