Following reporting season results, Morgans has updated price targets on two ASX penny stocks.
It's important to remember penny stocks can be risky investments because they often represent pre-profit or low liquidity companies. This can come with limited financial transparency, low liquidity, and high susceptibility to price manipulation and extreme volatility.
With that being said, here are two that Morgans has placed attractive price targets on.
MLG Oz Ltd (ASX: MLG)
MLG Oz Ltd operates within the Australian mining industry. It offers comprehensive supply chain solutions such as crushing and screening, quarry products, and Bulk Haulage & Site Services, and others.
It also reported on Wednesday, which included the following results:
- Statutory Revenue up 15.5% to $548.3 million, compared to the prior corresponding
- period (pcp).
- Statutory Earnings before interest, tax, depreciation and amortisation (EBITDA) of $66.1
- million, up 19.5% on pcp (FY2024: $53.3 million).
- Statutory Net Profit After Tax (NPAT) up 10% to $12.1 million (pcp $11.0 million).
Morgans was pleased with the results, and increased its price target to $1.00 (from $0.90).
From yesterday's closing price of $0.81, this indicates an upside of 23.46%.
The 2H result was robust with EBITDA of $37m (vs $29m in 1H) on margins of 13.5%. This came despite a lack of meaningful crushing & screening revenue. Rather, the core haulage business performed strongly on the back of a more predictable state of activity in key regions as well as portfolio optimisation (rates) and well-managed utilisation.
This augurs well for FY26, when the company is likely to see a step up in crushing & screening. More generally, MLG has significant opportunities for scope growth with existing gold clients, as well as growth potential in iron ore.
Step One Clothing Ltd (ASX: STP)
Step One Clothing Ltd is a direct-to-consumer online retailer for men's undergarments. Its products comprise Boxer Brief, Trunks, and Boxer Breif+Fly.
On Wednesday, the company reported:
- Revenue of $86.9 million, up 2.8% on pcp (FY24: $84.5 million)
- EBITDA of $17.4 million, down 3.7% on pcp (FY24: $18.1 million)
- Net profit of $12.7 million, up 2.0% on pcp (FY24: $12.4 million)
- Strong financial position with cash and financial assets of $33.1 million and no debt
- Final dividend of 2.4 cents per share, fully franked; 100% of earnings distributed while
- maintaining capacity to invest in growth
This sent the company's stock price soaring with gains of approximately 30% over the last two days despite missing expectations.
At yesterday's close, this penny stock was trading at $0.60.
Based on these results Morgans decreased its price target on the consumer discretionary share, but still sees upside if the company can execute on its FY26 strategy.
The broker suggests that if Step One Clothing successfully executes its turnaround strategy, the stock could be worth $0.95, but there's higher-than-normal uncertainty or risk involved in reaching that valuation.
STP's FY25 result missed expectations, gross margins were materially lower driven by increased discounting, somewhat offset by reduced marketing spend.
STP will use FY26 to reset pricing and promotions, drive new customer acquisition, launch new products and clear excess inventory. We think this is a prudent move to sustain longer-term profitable growth, but lowers near-term earnings.
Our DCF and EV/EBIT valuation reduces to $0.95. We have a speculative buy recommendation.
