Kalkine has a fully transformed New Avatar.
Company Overview: Westgold Resources Limited (ASX: WGX) is an explorer, mine developer, operator, and gold producer that operates various underground mines and open pits across the Central Murchison area, which provide feedstock for three processing plants strategically located to serve the region. The company’s Murchison operations comprise three operating segments, Fortnum Gold Operations (FGO), Meekatharra Gold Operations (MGO), and Cue Gold Operations (CGO). The company was listed on ASX on 6 December 2016.
WGX Details
Key Takeaways from FY21 Results:
Revenue Trend (Source: Analysis by Kalkine Group)
Update on the Off-market Takeover for Gascoyne Resources Limited: On 30 September 2021, Westgold Resources Limited announced an off-market takeover offer to acquire all of the shares in Gascoyne Resources Limited. As per the offer, the shareholders of Gascoyne Resources Limited will receive one WGX share for every 4 (four) Gascoyne Shares, subject to satisfaction or waiver of the Conditions to the Offer, including, inter alia, a minimum acceptance condition of 50.1%. The main highlights of the offer are mentioned below:
Key Metrics: Net margin for FY21 stood at 13.4%, up from 7% in FY20. EBITDA margin for FY21 stood at 44.5%, up from 33.5% in FY20. ROE for FY21 stood at 13.6%, up from 7.2% in FY20. Current ratio for FY21 stood at 1.88x, slightly up from 1.87x in FY20. Cash cycle days for FY21 stood at 14.5 days, down from 16 days in FY20.
Liquidity Profile and EBITDA Margin (Source: Analysis by Kalkine Group)
Top 10 Shareholders: The top 10 shareholders together form around 45.08% of the total shareholding, while the top four constitute the maximum holding. Ruffer LLP and Van Eck Associates Corporation are holding a maximum stake in the company at 9.07% and 8.99%, respectively, as also highlighted in the chart below:
(Source: Analysis by Kalkine Report)
Change in Substantial Holding: On 15 October 2021, L1 Capital Pty Ltd, one of the substantial holders in the company, increased its holdings in the company from 5.07% to 6.11%.
Key Risks:
Outlook: For FY22, the company expects its total gold production to grow to more than 270,000 oz with AISC of between A$1,500 – 1,700/oz. Looking ahead, the company is focused on lifting mine grades to ensure reliable and continuous delivery of its operational targets. Further, the company is also focused on achieving growth and expansion from greenfield and brownfield exploration or regional growth through acquisition. If the proposed acquisition of Gascoyne Resources Limited is completed, it will result in expanding the company’s total resource base and it will also increase the company’s production capacity to above 350,000 oz of gold in FY22.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: Over the last six months, the stock has corrected by ~15.43% and is currently trading lower than the average 52-week price level band of $1.575-$2.98. The stock has been valued using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the rising cost pressures, uncertainty surrounding the impact of COVID-19 pandemic and risks related to the availability of labour. For the valuation purpose, peers such as Dacian Gold Ltd (ASX: DCN), Resolute Mining Ltd (ASX: RSG), and Regis Resources Ltd (ASX: RRL), etc., have been considered. Considering the company’s improved financial performance in FY21, modest long-term outlook, rising cash balance, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $1.91 as on 19 October 2021, 11:40 PM (GMT+10), Sydney, Eastern Australia.
WGX Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.
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 - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.
Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.
There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.
You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.
The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.
Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.
Please also read our Terms & Conditions and Financial Services Guide for further information.
On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine and its related entities do not hold interests in any of the securities or other financial products covered on the Kalkine website.
Kalkine Media Pty Ltd, an affiliate of Kalkine Pty Ltd, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.