Here’s another collection of stocks under 50 cents, with one annoying caveat: the third stock, Genetic Signatures, was under 50 cents when I was writing this article – but it has jumped above that level today, gaining 8.5 cents, or 19.1%, on the back of lodging a
a 510(k) application (for a medical device) with the US Food & Drug Administration (FDA), for its EasyScreen Gastrointestinal Parasite Detection Kit. I wish it had announced this lodgement next week!
- Zip Co. (ZIP, 32 cents)
Market capitalisation: $264 million
12-month total return: –64.2%
3-year total return: –66% a year
Analysts’ consensus target return: 48.5 cents (Stock Doctor/Refinitiv, nine analysts), 78.6 cents (FN Arena, five analysts)
It is a very long way from the heights of $12.35 to 32 cents, but that has been the trajectory of buy-now-pay-later (BNPL) player Zip Co. since February 2021. The gloss has well and truly come off the BNPL sector and Zip Co. has struggled, amid rising bad debts and weak consumer confidence. But the tide may have turned for the stock, in the wake of an improved performance in FY23 that saw the net loss more than halve, from $1.1 billion in FY22 to $414 million, and revenue rise 16%, to a record $693.2 million. Zip’s total transaction volume (TTV) lifted 7%, to a record $8.9 billion, with a higher margin – 8.5% of TTV by the end of the year, up from 7.6% a year earlier – flowing through to the bottom line. A reduction in net bad debts to 2% of TTV, from 2.7% a year earlier, also boosted performance (the company’s target range is less than 2%.
Importantly, Zip Co. said in its result that it finished FY23 with the US and NZ businesses both with positive monthly earnings – the number Zip Co. uses for this is “cash EBTDA,” which strips-out tax, depreciation and amortisation. The Australian business has been cash EBTDA-positive for five years. Zip Co expects the entire business to be cash EBTDA-positive over the first half of the FY24 financial year.
Zip Co. said that being cash EBDTA-positive and with business practices aligned to the government’s proposed BNPL regulatory framework, including having held an Australian Credit Licence for 10 years and conducting full ID, credit and affordability checks on its customers, makes Zip uniquely placed in the market.” The company said that the improving bad debt performance was a particular highlight and supported by a reduction in costs, “provides a strong platform for profitable growth.” Analysts are generally positive on Zip Co. in terms of target price, with Shaw and Partners the most optimistic – its target price on the stock is $1.87.
- Highfield Resources (HFR, 43 cents)
Market capitalisation: $188 million
12-month total return: –55.4%
3-year total return: –1.5% a year
Analysts’ consensus target return: $1.50 (Stock Doctor/Refinitiv, one analyst), 78.6 cents (FN Arena, five analysts)
Highfield Resources owns the Muga potash project in Spain, which is poised to enter full-scale construction before the end of the year, with Potash production expected in 2026. The company has 250 square kilometres of potash tenements in the Ebro potash-producing basin in Northern Spain: the beauty of the location and the timeline is that Muga is perfectly placed to meet emerging demand, especially in Europe, for fertiliser, which has been hit by sanctions on Russia and Belarus. Prior to the Ukraine war, that pair accounted for 38% of worldwide fertiliser production, and 47% of European imports. The world needs fertiliser to feed growing populations, but from the same amount of arable land; using fertilisers is considered essential to increase productivity. But at the same time, potash production is declining, and fertiliser is getting harder to find, leaving users in Europe very keen on a local supply source. Muga will be the next major European potash mine to come into production.
Muga’s shallow mineralisation makes the deposit easy and relatively cheap to access, and it is forecast to be one of the highest-margin potash mines globally. Highfield will also sell salt from the project, with the company saying that will allow it to “convert residue management into a commercial opportunity.” Muga will be a two-phase project, expected to cost €662 million ($1.1 billion), that at full production will produce a total of one million tonnes a year of muriate of potash (MoP), over a projected initial mine life of 30 years. As well as the significant logistical competitive advantage the project will have supplying into Europe, it will also have a low freight cost to Brazil, a major potash market (Brazil and Africa are expected to be major future growth areas for potash demand.) At full production, Highfield projects the mine to earn EBITDA (earnings before interest, tax, depreciation and amortisation) of about €400 million ($670 million) a year; and at current potash prices, in May the company estimated the net present value (NPV) of the project at about €3 billion ($5 billion). Highfield says there has been a high level of interest in the mine from customers, with memorandums of understanding (MOUs) signed with key customers Ameropa and Keytrade covering 550,000 tonnes a year, which is more than the planned Phase 1 production.
Muga is a project that ticks virtually every box and should provide plenty of impetus for the HFR share price.
- Genetic Signatures (GSS, 44 cents)
Market capitalisation: $64 million
12-month total return: –51.6%
3-year total return: –41.5% a year
Analysts’ consensus target return: 95 cents (Stock Doctor/Refinitiv, two analysts)
Specialist molecular diagnostics company Genetic Signatures is a specialist molecular diagnostics (MDx) company focused on the development and commercialisation of its proprietary platform technology, 3base. 3base is a revolutionary approach for molecular diagnostics, because it allows hospital and pathology laboratories to do syndromic (that is, multiple) tests from a single sample: the 3base platform can detect up to 20 organisms at a time from the one patient, thus shortening the wait time from days to hours. Syndromic testing enables a single test to determine the potential cause of a patient’s disorder and avoids having to order separate tests for each possible pathogen. Not only does this greatly simplify the process of pathogen testing, it is more informative, being able to detect related pathogens/genes using fewer tests, and it is also much simpler, needing fewer reagents.
From this platform, Genetic Signatures has released a suite of real-time polymerase chain reaction (PCR)-based products for the routine detection of infectious diseases under the EasyScreen brand: this proprietary MDx technology enables hospitals and pathology laboratories to screen for a wide array of infectious pathogens with a high degree of specificity in a rapid throughput (that is, a short time to get a result) environment.
Using the 3base technology, Genetic Signatures’ low-cost EasyScreen test kits – manufactured in Sydney – allow clinicians to detect the most common infectious agents: the kits can detect more than 150 diseases across six broad categories: enteric (gastro-intestinal), respiratory, antimicrobial resistance, sexual health, meningitis and tropical diseases. Diagnostic solutions for five other disease areas are also at various stages of the development pipeline. The 3base technology is particularly well-suited for the detection of seasonal respiratory viral pathogens, as the tests are more resilient than traditional PCR to genetic mutation and the emergence of new strains.
The COVID-19 pandemic was a major benefit for Genetic Signatures, which experienced strong demand for its EasyScreen SARS-CoV-2 Detection Kit, which led to heightened awareness of the Genetic Signatures brand and the unique advantages of 3base technology in key markets. But the downside is that following a decrease in public health molecular SARS-CoV-2 testing, in FY23, sales revenue fell 52%, to $16.9 million while the net loss widened from $3.1 million in FY22 to $14.05 million. The company is well-positioned to leverage its greater brand recognition by moving its customers to its syndromic testing solutions, particularly in the lucrative US and European markets (75% of revenue in FY23 came from syndromic testing products).
For example, in the US, Genetic Signatures is focused on the commercial launch of the EasyScreen Gastrointestinal Parasite Detection Kit: the company’s goal is to capture 40% of the estimated addressable market of 5.5 million tests a year. Today, the company announced that it has submitted a 510(k) application to the US Food & Drug Administration (FDA) for the kit, with preparations for the anticipated commercial launch well underway: as soon as FDA clearance is received, initial commercial sales are expected to commence. However, analysts don’t see a net profit from GSS before FY25.
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