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5 stocks under 50 cents

Posted By James Dunn On In Shares | No Comments

The last time we ran a ‘5 under 50 cents’ portfolio was 31 August 2020 [1]. Here is the tale of the tape for that group.

  1. Ashley Services Group (ASH, 40.5 cents) – now 42 – up 3.7%
  2. Freelancer (FLN, 49 cents) – now 55 – up 12.2%
  3. Atomo Diagnostics (AT1, 44.5 cents) – now 28 – down 37.1%
  4. Intega Group (ITG, 29.5 cents) – now 32 – up 8.5%
  5. Archer Materials (AXE, 47.5 cents) – now $1 – up 110.5%

For the five stocks the average gain is 19.6%

For the first time in 2021, here’s another batch of ‘Five Under 50 cents’ selections – ranging across industries, and from a fully-franked dividend payer to tiny (but growing) revenue earners.

1. Jervois Mining (JRV, 50 cents)
Market capitalisation: $409 million
Three-year total return: +2% a year
Stock Doctor target: 76 cents

Jervois Mining is an emerging cobalt story that is poised to solve a very major problem for the United States – the fact that the blue metal is difficult to obtain, as the Democratic Republic of Congo (DRC) represents about 80% of global supply, and China has almost monopolised that: 80%–90% of the DRC’s cobalt exports go to China. As Jervois puts it, China “exerts vast control over every step of the cobalt supply chain.”

That matters hugely for the United States and its allies. Cobalt is an essential part of lithium-ion electric-vehicle batteries as the safe part of the cathode, and is also used in specialty stainless steels and nickel-cobalt super-alloys. Jervois’ wholly owned Idaho Cobalt Operations (ICO) is a fully permitted high-grade cobalt-copper-gold deposit in the eponymous US state, that is about to start construction, with the company targeting production starting mid-2022. After the mining operations start, ICO will be the only cobalt producer in the US.

Jervois also owns the São Miguel Paulista (SMP) nickel-cobalt refinery in Brazil, which it has picked up for a bargain-basement $31 million. The refinery has been on care-and-maintenance since 2016 when the Niquelandia mine was closed: it used to have very high recovery rates (99% nickel and 96% cobalt). Jervois is considering a low-cost plan of converting the nickel capacity into cobalt capacity, which would create one of the biggest cobalt refineries in the world, with a feasibility study into the restart being prepared in 2021, and if everything proceeds smoothly, the refinery recommencing operation in mid-2022 when the concentrates from ICO should be available. By that stage Jervois would have a fully integrated cobalt value chain, and, it says, be “one of the largest publicly listed cobalt companies in the world, with significant nickel and copper exposure.”

The company also owns the Nico Young nickel-cobalt project in New South Wales, which contains indicated resources of 47.3 million pounds of nickel and 2.8 million pounds of cobalt, and inferred resources of 1.25 billion pounds of nickel and 99.3 million pounds cobalt; as well as highly prospective copper-cobalt ground in Uganda.

2. ReadCloud (RCL, 40 cents)
Market capitalisation: $47 million
Three-year total return: +6.7% a year
Stock Doctor consensus valuation target: 90 cents

Cloud-based learning software provider ReadCloud has built a proprietary e-book platform that delivers digital content to students and teachers, in schools as well as the vocational education and training (VET) sector. The platform has extensive functionality that includes the ability for students and teacher to make notes and commentary, and import third-party content. Students and teachers can access all of their classroom content, as well as share notes, questions, images, videos and internet links, in one application, the ReadCloud app. ReadCloud says this turns the eBook into a place for discussion, collaboration and social learning, which can substantially improve learning outcomes in classrooms. The discussion is effectively a “live chat” within the textbook, which plays into how young people communicate digitally, and enables the shyer students to ask questions of their teachers with a simple annotation of the text.

ReadCloud sources content for its solutions from multiple publishers, delivering the full Australian school curriculum in digital form in all states, on one platform. ReadCloud receives the eBook from the publisher and encrypts it so that it can only be read inside the ReadCloud app. In the vocational education and training (VET) sector, ReadCloud provides more than 40 digital VET courses and services to schools across Australia. The company says that COVID-19 has substantially accelerated the shift by schools to have a remote learning solution, which plays into the strength of the key features of the ReadCloud platform.

The business model is a combination of a software-as-a-service (SaaS) platform revenues and a distribution channel for educational publishers. At present ReadCloud has more than 117,000 users in more than 530 school customers, and continues to grow market share. The company says its Australian market opportunity is large, with an immediate target market of 2,775 secondary schools with 1.6 million students and 236,000 students yearly taking VET courses in school. At the moment, RCL is focusing solely on building its Australian business: it is increasing its investment and focus in the VET sector, supported by favourable recommendations in the Productivity Commission’s recent report on the VET sector (released in January 2021), including a focus on improved career pathways encouraging more secondary students in Years 9 to 12 to undertake VET-in-school programs.

RCL has a strong balance sheet (just over $7 million cash and zero debt), which it says makes it able to continue expansion through targeted acquisitions and increased business development activities, particularly in the VET segment. The company does not yet make a profit – that is not expected until FY22 – but it’s a cracking business, with a clear growth pathway.

3. Aurelia Metals (AMI, 38 cents)
Market capitalisation: $469 million
Three-year total return: +5.3% a year
Stock Doctor consensus valuation target: 76.7 cents
FN Arena consensus valuation target: 80 cents

Aurelia Metals operates three gold mines in New South Wales; the Peak and Hera mines are located in the Cobar Basin in western NSW, and the Dargues mine is in south-eastern NSW. Peak produces gold, copper, lead and zinc; Hera produces gold, lead, zinc and silver; and Dargues produces gold. In FY20, Aurelia produced 91,672 ounces of gold at a group all-in sustaining cost (AISC) of A$1,520 per ounce. The upshot of that was a 1-cent a share fully franked dividend.

But the big story with Aurelia is its April 2019 discovery of high-grade gold, lead, zinc and copper mineralisation at its Federation deposit, which lies 15 kilometres south of the historical mining town of Nymagee and 10 kilometres south of the company’s Hera Mine. Last month, Aurelia updated the mineral resource estimate (MRE) for the Federation deposit, and virtually confirmed that it is one of the highest-grade deposits in the country. After 55,000 metres of drilling, the MRE now totals 3.5 million tonnes at 5.5 per cent lead, 9.8 per cent zinc, 1.4g/t gold, 7g/t silver and 0.3 per cent copper. At the moment, that stands at 91,000 ounces of contained gold. Some of the gold results at Federation have been high-grade bonanzas, including hits of:

These are outstanding intercepts, and it’s highly likely that there is more in that line to come: the deposit remains open in multiple directions. Already Aurelia is comfortable calling Federation “one of the great discoveries of the Cobar Basin in recent decades.” More alluring to investors should be broker Ord Minnett’s contention that Federation is “worth more than company’s current market capitalisation.”

4. Adveritas (AV1, 14 cents)
Market capitalisation: $52 million
Three-year total return: +13.3% a year
Stock Doctor consensus valuation target: n/a
FN Arena consensus valuation target: n/a

Adveritas’ unique proposition is that it can solve a massive global problem, that of digital marketing ad fraud, estimated to be an issue that cost global advertisers US$42 billion in 2019 and is forecast to cost US$100 ($130 billion) by 2023.

Adveritas’ solution is its TrafficGuard technology, which combines the intellectual property of its specialist software engineering and data science teams with a proprietary big data “set” accumulated through almost a decade of “adtech” (advertising technology) industry experience. Because it has studied (and continues to monitor) traffic across thousands of campaigns, TrafficGuard’s inbuilt machine learning capability can identify emerging patterns, trends and indicators of fraud quickly and reliably.

TrafficGuard features triple-layered ad fraud prevention: the company (and some of its big investors) state that it is the only fraud prevention solution in the adtech market at present that offers protection across three levels, at the impression, click, and event level. TrafficGuard not only detects, mitigates and reports on digital ad fraud in real-time, it can ‘surgically” remove fraud and protect valid traffic. Customers like this because it ensures that digital advertising only results in real engagements.

TrafficGuard is a great example of commercialised Australian technology solving a big global problem. The software-as-a-service (SaaS) offering suits any business that needs to optimise its return on advertising: global client wins are starting to come, including Latin American on-demand marketplace app Rappi, Indonesia-based super-app Gojek, betting heavyweight Ladbrokes, Scandinavian credit institution CrediNord and French-based online music streaming service Deezer.

It’s early days for Adveritas, which is not yet profitable, but it is well-capitalised ($6.7 million in cash) and is investing in global scale, with sales offices now in the US, Europe, Singapore and Brazil, serving their respective continents, as well as Australia. The company says that its sales drive has resulted in “a huge number of companies commencing TrafficGuard trials – which bodes well for strong growth in the near-term.”

5. archTIS (AR9, 30 cents)
Market capitalisation: $68 million
Three-year total return: n/a
Stock Doctor consensus valuation target: n/a
FN Arena consensus valuation target: n/a

Listed in September 2018, Canberra-based archTIS has developed a cloud-based software-as-a-service (SaaS) security and collaboration platform called Kojensi, which arose out of a solution built for the Australian Department of Defence, and further developed in trials involving a number of Australian Federal Government agencies, including the Commonwealth Attorney General’s Department (AGD) and the federal Aged Care Royal Commission. Subsequently, in September, the Attorney General’s Department signed on as the platform’s first customer.

Kojensi Gov is hosted within a protected cloud environment accredited by the Australian Signals Directorate (ASD), and offers in-built government-compliant data classification (the Australian government’s Protective Security Policy Framework, or PSPF) and meets information management standards and security (ISM) requirements. The unique selling point of the platform is that it allows collaboration between government and industry in working on information classified at the “Protected” level.

The platform is being marketed as a secure content and collaboration cloud service, which offers a combination of enterprise content management capabilities, collaboration tools and workflows. Instead of using passwords, the Kojensi platform creates an electronic “fingerprint” on the data or documents, determining who can access the material, where, and when. While testing and the first sale took place at a government level, archTIS says any organisation concerned about protecting the security of their information is a potential customer.

In September, archTIS signed a $4.2 million landmark contract from the Australian Department of Defence (DoD), which provided the department with three licences for the Kojensi platform aimed at securing military information shared between Australia and its allied partners. Then, in October, archTIS entered the US market through a $9.75 million scrip-for-scrip merger deal with Nucleus Cyber, which provided the company with immediate presence in the North American markets, including access to the Microsoft Teams platform. The Nucleus Cyber acquisition showed its worth earlier this month when the merged entity created a US Federal and Defence Sales and Channel business, to address growing demand for information protection systems from US government.

Globally, the cybersecurity market is worth US$173 billion ($225 billion) and that is forecast to grow to US$270 billion ($350 billion) – following the merger with Nucleus Cyber, archTIS is very well-placed to tap into the global market, particularly in the highly sensitive defence and government sector.

Although it is also yet to strike a profit, archTIS reported a 358% surge in revenue for the first (December) half of FY21, to $1.11 million. Recurring revenue swelled 355%, to $450,000. These are tiny amounts, but archTIS is steadily growing revenue, and putting in place the planks to grow it even further – and the potential growth of its industry seems clear. The company has the cash to support its strategy, sitting on $12.1 million as at 31 December 2020.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.