Company Overview: Berkeley Energia Limited (ASX: BKY) is a mineral exploration & development company. It has main focus on its 100% owned Salamanca project, in Western Spain. The project has the capability of ~4.4 million pounds of uranium production per year. The company was listed on ASX in September 2003. Besides Australia, the stock also trades on Madrid, Barcelona, Bilboa and Valencia Stock Exchanges of Spain (BdM: BKY) and London Stock Exchange of United Kingdom (LSE: BKY).
Business Updates:
- Substantial Shareholding: As per 5th April 2022 announcement, Paradice investment Management Pty Ltd and Packer & Co Ltd ATF Packer & Co Investigator Trust became substantial shareholders in the company, with attaining voting power of 9.90% and 6.41%, respectively.
- OIA Claim Settlement: As on 1st April 2022, the company completed a “Special Crossing” in relation to the investment agreement & convertible note. It confirmed, the legal proceedings will be discontinued and the settlement of the OIA (Oman Investment Authority) claim will be effective after the 100% sell down of shares (186,814,815 fully paid ordinary shares) at a fixed price bookbuild at a price of A$0.35 per share, which were issued to OIA in November 2021.
- Salamanca Project Defense: BKY strongly justifies its position with respect to the adverse resolution passed by Ministry for Ecological Transition and the Demographic Challenge (“MITECO”). The resolution rejected its uranium concentrate plant’s construction authorization, as a radioactive facility (“NSC II”) at the Company’s Salamanca project, late in 2021. The Western Spain project will be one of the world’s lowest cost producers, with a capability of strong after-tax cash flows generation. Moreover, with the Russian-Ukraine conflict and ~10x rise in electricity in Spain and rest of the Europe, nuclear power is being evaluated as a viable alternative to decrease Europe’s dependence on Russian energy.
1HFY22 Financial Highlights:
- Balance Sheet Items: With the Nil cash receipts from customers in 1HFY22, its payment to suppliers was reduced from $3.23 million to $2.94 million. The cash balance as on 31st December 2021, was clocked at $78.62 million, a slight decrease on pcp basis. The debt levels were almost zeroed down with derivative financial liabilities of $462k.
Cash Details (Source: Analysis by Kalkine Group)
- Revenue & Profit/Loss Details: The total interest income for the period of 1HFY22 stood at $15k versus $8k on pcp. The net losses were converted into net profits of $3.01 million.
Profitability (Source: Analysis by Kalkine Group)
Top 10 Shareholders: The top 10 shareholders together form around 30.55% of the total shareholding, while the top 4 constitute the maximum holding. Paradice Investment Management Pty. Ltd. and Packer & Co., Ltd. are holding a maximum stake in the company at 9.90% and 6.41%, respectively, as also highlighted in the chart below:
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Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: BKY’s current ratio enhanced from 0.81x to 30.97x from 2HFY21 to 1HFY22, respectively. Moreover, it closed its half-yearly accounts with a virtually debt-free status and having both its ROE and ROIC as a positive ~10.3%.
Current Ratio & Returns (Source: Analysis by Kalkine Group)
Key Risks:
- COVID-19 Pandemic: Travel restrictions and lockdowns due to COVID-19 might hold down its operations of mining and thereby affecting its earnings, cash flow and financial position.
- Commodity Risk: As the company’s business involves commodity prices, it might get affected by the changes in demands, currency fluctuations and commodity price differences.
- Regulatory Risk: The company is exposed to a more complex regulatory environment; any failure in the same could lead the business to fines, penalties, etc.
- Technology & Labor Risk: The business is quite dependent on the technology it applies and availability of labors. Hence, failure of regular upgradation and labor costs might affect the operations and profitability.
Outlook: The overall nuclear market seems to be positive with China’s plans of building ~150 new reactors in the next 15 years, more than the rest of the world has ever built in the past 35 years. The Uranium spot price closed at US$42.10/pound at December end and reached a high of US$47.40/pound in October. Moreover, the Uranium price indicators reflecting the longer-term market, also climbed in December to US$40.50 per pound (Long-term); US$43.75 per pound (3-year forward price); and US$44.75 per pound (5-year forward price). The bills, including US$6 billion cushioning existing zero-carbon nuclear facilities and US$2.5 billion for advanced nuclear reactors, were also passed by the US Congress through the Department of Energy’s Advanced Reactor Demonstration Program. Additionally, BKY also puts his foot forward in NSC II application for its Salamanca project, which will be a key approval to commence the full construction of one of the world’s lowest cost producers and strong after-tax cash flows generation project in Spain.
Technical Analysis: BKY prices broke the downward sloping trend line by upside and the prices are sustaining above the same from the past four weeks that indicates stock is trading in a bullish momentum. Also, prices are trading above its trend following indicators 21-period and 50-period SMA on a weekly chart, which is also supportive for the price action. RSI (14-period) is hovering at ~53.841 that indicates prices are trading in a positive momentum. Immediate support levels are $0.355 and $0.330 and immediate resistance levels are $0.520 and $0.600, respectively.
Stock Recommendation: The company is trading higher than its 52-week low-high average of $0.140 - $0.640, respectively. The company's share has corrected ~32.54% in past year and has given a positive return of ~60.3% in last three months. In addition, the stock is trading at P/BV multiple of 2.5x as compared to the industry average (Uranium) of 5.1x and (Energy) of 6.3x on a TTM basis. Thus, it seems that the stock is undervalued at the current trading levels. Considering the valuation on TTM basis, decent liquidity position, virtually nil Debt-to-Equity ratio, OIA claim and legal issues settlement, strong foot forward in Spain project, current breakout on daily chart & technical levels, witnessing rise in Uranium prices % demand, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.425, as of 12th April 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
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BKY Daily Technical Chart, Data Source: REFINITIV
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.
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