5 Broker Recommendations - Average PT $3.47, page-6

Spec buy up-to $3.30, Hold to $5.

They note the cyclicality and the fact that earnings potential is already well priced in as the main reasons for the Spec tag, as well as the need for flawless execution as anything else will be punished.

My favourite from the report:

Of course, quantifying all of this is the hard part. There’s likely to be growth over the coming years, and our base case assumption for free cash flow in 2020 is $20-25m, which implies a free cash flow yield of 2.5-3.1%. Our bear case sees the business failing to achieve the spectacular growth rates of the past, instead eking out growth at the rate of inflation. In this scenario, it might deserve a valuation of $300-350m, or about one third of the current price.

But we expect that’s a harsh assumption. EML appears to be well managed, has lots of optionality and there’s a long growth runway that – if captured – means it will spew cash. There's a good chance the business continues to achieve growth rates in the double-digits for the next five to ten years. If that pans out, our upside could be multiples.