Firan Technology Group Corporation

Firan Technology Group Corporation (TSX: FTG) is a supplier of aerospace and defense electronic products and subsystems. The group has two operating segments, namely FTG Circuits and FTG Aerospace. FTG Circuits manufactures printed circuit boards across the global markets. 

Key Updates:

• Positive Technical Indicators: The stock of FTG closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish pattern. The stock reported decent gains in the recent past, and appreciated ~26% and ~24%, respectively in the last three months and six months, respectively.

 Source: Refinitiv (Thomson Reuters)

• Increase in Cash Flows: The company reported higher cash flows from operations, despite a lower net profit in FY20, supported by prudent working capital management, which is a key positive and indicates operational efficiency. Cash from operations for FY20 stood at CAD 15.779 million, higher than CAD 11.907 million, a year ago. Moreover, the company has reduced its headcount by ~7% in order to match its current productivity. Notably, during Q4FY20, the company posted its free cash flows at CAD 4.050 million, higher than CAD 2.477 million, a year ago.
• Sufficient Liquidity: The group reported a two-year committed Credit Facility, from its existing financial institutions, which offers operating facility of USD 10 million and a capex facility of USD 10 million. With the above credit facility, along with cash flows, the management is confident to meet its near-term working capital and investments needs.

Q4FY20 Financial Highlights:

• FTG announced its quarterly results, wherein the group posted sales of CAD 26.711 million, as compared to CAD 27.075 million in the previous corresponding period (pcp). The slight decline was due to the lower orders on account of COVID-19 pandemic, which was offset by higher shipments within the simulator related segment, related to the defense programs.
• Operating Earnings stood at CAD 3.808 million, lower than CAD 2.745 million in pcp.
• The quarter was marked by slightly lower net R&D Investment (CAD 1.318 million versus CAD 1.339 million in pcp) and an increase in foreign exchange loss (CAD 0.446 million, versus CAD 0.253 million in pcp).
• The group reported net earnings of CAD 1.308 million, stood higher than CAD 0.575 million in pcp.
• The group reported cash and cash equivalent of CAD 19.032 million, while total assets were recorded at CAD 86.676 million.           

Q4FY20 Income Statement Highlights (Source: Company Reports)

Risks: During Q4FY20, the group reported a cyberattack that negatively impacted operating results. Repetitive cyber-attacks could dampen the company’s overall performance and the company’s secrecy. Moreover, the spread of new variants of the virus would pose restrictions over the airline industry, which might dampen the order book.

Stock Recommendation:

The company operates in a niche segment i.e. printed circuit board, used in Aerospace and defense. The company derives ~75% of the revenue from the US markets. During FY20, the company upgraded its machinery, which includes deburring line and etchboard line, purchased of sprint machines, multiline machine, spectrometer, planarizer and other upgrades related existing facilities. In addition to this, the group invested in automated, highly secure system to combat cyber threats. Moreover, the defense segment has remained resilient amid COVID-19 pandemic, driven by higher capital allocation from the Government in order to boost overall economy. The stock of FTG is trading at a significantly lower multiple of EV to Sales of 0.4x on NTM basis, as compared to the industry (Aerospace & Defense) median of 1.6x. Hence, considering the above rationale, we recommend a ‘Speculative Buy’ rating on the stock at the current closing price of CAD 2.18 on February 12^th, 2021.

FTG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

StageZero Life Sciences Ltd

StageZero Life Sciences Ltd (TSX: SZLS) is a Canadian company, which is engaged in the development and marketing of its proprietary molecular diagnostic tests for early detection of diseases and personalized health management.

Key Updates:

• Increased Footfalls: In the recent past, the group witnessed an increase in the number of tests, due to higher testing on account of COVID-19 pandemic, coupled with the addition of new service providers. Moreover, the company is uniquely positioned to offer to test for the SARS-CoV-2 virus. Notably, the group has offered two types of COVID-19 tests: PCR, and antibody tests since April 2020.
• A Bullish Momentum: SZLS shares are hovering in a bullish price zone, with stock traded above the crucial 21-day SMA, with 14-day and 9-day RSI hovering in a neutral zone indicating a positive bias in the stock. Moreover, the difference between 12-day EMA and 26-day is positive, another bullish indicator.
• Public Offering of USD 7.2 million: On December 04, 2020, the company announced public offering of 9,243,700 shares, at a price of USD 0.78 per Unit, for gross proceeds of USD 7.2 million. The group would use the above proceeds to expand its existing capacity used to offer and conduct COVID-19 testing and to develop its existing products like Aristotle^®, which is a pan-cancer test and is used for early identification of ten discrete cancers from a single blood sample.

Q3FY20 Financial Highlights:

• SZLS announced its quarterly results, wherein the group posted total revenues of USD 1.464 million, significantly higher than USD 0.023 million in the previous corresponding period (pcp). The increase was driven by the increase in testing numbers on account of COVID 19 pandemic.
• The quarter was marked by higher cost of goods sold (USD 0.973 million versus USD 0.376 million in pcp) and a decline in general and administrative expense (USD 1.181 million versus USD 1.285 million in pcp).
• The group witnessed a gain from a change in fair value of convertible debenture amounting USD 1.178 million, while finance costs stood lower at USD 0.103 million, significantly higher than USD 0.304 million in pcp.
• The company reported a net loss of USD 4.644 million, as compared to a net profit of USD 1.883 million in pcp.
• The group reported a cash balance of USD 1.792 million, while total assets were recorded at USD 4.057 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The company business model is exposed to liquidity risk which represents the contingency that the Company is unable to gather the funds required with respect to its financial obligations at the appropriate time and under reasonable conditions.

Stock Recommendation: SZLS has reported a decent Q3FY20. Further, the company has USD 1.5 million cash, which is significantly exceeds projected operating costs of USD 900,000 per quarter and testing momentum has continued in Q4FY20 as well. Moreover, its shares are in strong bull run with price traded above the crucial support levels of 200-day, 100-day, 50-day and 30-day SMA with the gap between 12-day EMA and 26-day EMA positive. Therefore, based on the above rationale and considering risk associated with a penny-cap stocks (like liquidity, high beta and other company specific risks), we recommend a “Speculative Buy” at the closing price of CAD 1.10 on February 12, 2021, with lower double digit upside potential.

1-Year Price Chart (as on February 12^th, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.