This report is an updated version of the report published on 15 June 2022 at 3:51 PM (GMT +10)

DGL Group Limited

DGL Details

DGL Group Limited (ASX: DGL) is a speciality chemical business company engaged in manufacturing, transporting, storing and processing chemicals and hazardous waste.

Result Performance for the First Half Ended 31 December 2021 – (H1FY22)

• Revenue stood at A$143 million in H1FY22, up 55% YoY, primarily driven by a significant rise in scale and diversified earnings in H1FY22 through acquisitions and organic growth.
• Significant demand continues for manufacturing and warehousing & distribution services in H1FY22.
• Stronger than projected Q2FY22 growth across all three operating segments reported in H1FY22, which is projected to continue into H2FY22
• Net profit after tax stood at $8.5 million in H1FY22, up 185% YoY, primarily supported by substantial sales revenue. The seven acquisitions integrated well with DGL’s scale, geographies, expertise and offerings.

Source: Company Reports, Analysis by Kalkine Group

Key Update

• On 27 May 2022, the company advised that it would delist from the Main Board of NZX Limited on 28 June 2022 and move to an exclusive listing on the Australian Securities Exchange (ASX).
• On 16 May 2022, the company advised the strategic acquisition of Temples chemicals warehousing division for cash consideration of $3.5 million, reflecting a valuation of 2.2x FY21. Normalised EBITDA.

Outlook

The company projects revenue of ~$343 million and EBITDA of ~$54 million (before acquisition costs) for FY22. For H2FY22, EBITDA is anticipated to be ~$31 million. The Q2FY22 momentum is assumed to be carried forward in Q3FY22 and Q4FY22 with more significant contributions from completed acquisitions. The prime focus will be to integrate investments and work on strategies through site and plant optimisation and cross-selling of products. Moreover, the company is well-positioned to take advantage of growing opportunities in its product line.

Key Risks

The group is exposed to credit, liquidity, interest rate, and foreign currency risks. Fluctuations in market prices mainly due to demand and supply factors (other than those arising from interest rate risk or foreign currency risk) for commodities also remain a potential risk.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation, and the target price so arrived reflects a rise of low-double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the smooth integration of acquisitions and an expectation of continued growth momentum through organic and inorganic routes in the long run.

Considering the factors above, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.53 per share as of 15 June 2022 (Time: 3:21 PM (GMT+10), Sydney, Australia).

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

DGL Group Limited (DGL) is a part of Kalkine’s Global Green Energy Product

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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