Brokers have named 4 undervalued stocks that could outperform. Picture Getty
MoneyTalks: 2 ASX shares that could more than double, and 2 climate friendly stocks about to take off
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- Brokers CZZ Equities and MA Moelis have named 4 undervalued stocks
- National Tyre & Wheel and AI-Media could more than double
- Two environmental stocks Envirosuite and Close The Loop could have big upsides too
Four ASX stocks have been rated as a Buy by brokers CCZ Equities and MA Moelis, with a new investment thesis on each stock updated this week following the recent earnings reports.
National Tyre & Wheel could double
CCZ Equities says National Tyre & Wheel (ASX:NTD) has been underperforming due to challenging macro conditions, but the company is now a materially stronger and more diversified business following the acquisitions of Black Rubber and Carter.
As macro pressures unwind, the broker sees a strong relative value play on NTD with a target price of $1.15 vs current price of 54c.
In the second half, price pressures are expected to soften even further with shipping rates already coming off considerably since the mid of 2022. Crude oil, which makes up 50% of tyre input cost, has also come off its June highs by around -51%.
As such, NTD’s gross margins could return to FY22 levels starting from later this year, positioning the company for a stronger FY24.
Management has guided H2 FY23 operating NPATA of$7.6m, a huge +443% growth on H1 FY23.
“NTD’s management has also put a hold on some parts of the ERP (enterprise resource planning) project, which will free up additional cash and allow management to focus on the short-term margin improvements,” said CCZ’s note.
AI-Media Technologies has a 146% upside
CCZ Equities believes AI-Media Technologies (ASX:AIM)’s move into higher margin products will allow its share price to more than double to 79c (vs 32c now). CCZ’ valuation implies a +146% upside on last Friday’s close.
AIM’s first half saw the fruits of the transition he company is making toward lower revenue, higher margin SaaS/Devices products.
Legacy services revenue continued to decline, while its SaaS product LEXI (Lexi, Smart Lexi, and Lexi Translate) continued to grow, with over 100% increase in revenue vs pcp.
As this transition continues, CCZ believes EBITDA and NPAT margins will continue to expand, generating free cash flow at a rate of +54% CAGR to FY27.
“AIM’s shift to higher gross margin products is progressing, illustrated by the continual increase in gross margin since the first half of FY21.”
Close the Loop’s massive tailwinds
CCZ Equities has upgraded its forecast for recycling specialist Close the Loop (ASX:CLG), reflecting a robust trading period and the recent In-Plas acquisition.
CCZ says its DCF valuation model suggests a fair price of 51c (vs 35c today).
The broker has revised CLG’s top and bottom line estimates, with revenues now expected to increase between 7%-9% to FY25 from the last estimate. EBITDA is also expected to rise between 5%-10% to FY25 vs the last estimate published.
“CLG is expected to expand its collection programs after successful trials, with revenue contributions expected in the second half,” said the note.
Australian national targets for recycleable packaging, as well as Western countries’ adoption of 2025 packaging targets, will provide a huge catalyst for CLG’s recycled products.
The broker believes CLG’s diverse range of products is well-positioned to meet this global growing demand for sustainable packaging solutions going forward.
Envirosuite
MA Moelis has rated environmental data specialist Envirosite (ASX:EVS) as a Buy, with a fair price target of 19c (vs 11c now).
The broker updated its investment thesis on EVS last week, saying the company’s software is being viewed by the ESG compliance market as a ‘must have’ (from ‘nice to have’).
“We see strong organic growth ahead with improving revenue quality from higher-margin sales, spread across a diverse global customer base,” said the broker.
In the first half, EVS saw its fist half annual recurring revenue (ARR) grew 16%, with the Aviation segment delivering record sales as air traffic levels rebounded.
MA Moelis believes this segment will keep going stronger following the signing of a national air navigation service provider in North America.
That deal showed potential for EVS’ software’s application to extend beyond just individual airports, and into organisations that deliver services related to broader airspace.
Overall, MA Moelis thinks EVS will generate a strong H2 pipeline that will provide a path to a free cash flow positive run rate by December 2023.
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The views, information, or opinions expressed in this article are solely those of the brokers, and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
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