Buru Energy Limited

BRU Details

Lifting of Crude Oil: Buru Energy Limited (ASX: BRU) is engaged in the exploration, development, and production of petroleum. Recently, the company has finished lifting of Ungani crude oil from Wyndham Port by the MT SCF Pechora for a total of around 74,000 bbls.

• BP Singapore Pte Limited (BP) has purchased the crude FOB Wyndham and would deliver the crude to a refinery in SE Asia as per the terms of the marketing agreement.
• In addition, the company’s 50% revenue share from the lifting is currently estimated at almost $3.7 million considering the current very strong Brent price.

Operations Update:

• With respect to Rafael 1 well drilling, the company has drilled a further 12¼ inch (311 mm) hole to the current depth of some 3,300 meters. The drilling operations have been consistent and found no significant rig related downtime.
• On Currajong 1 well, the company has finished testing by swabbing of all four of the porous zones interpreted from wireline logs. BRU has recognized good reservoir quality in all zones and found no oil from the tested zones.

1H FY21 Financial Summary:

• Completion of Capital Raising: During 1H FY21, the company finished capital raising, which comprised of placement of $15 million before costs and Share Purchase Plan (SPP) of $1 million. The company would use the funds for its 2021 Canning Basin exploration and development program, and it is likely to support its existing cash reserves to finance ongoing activities and growth opportunities.
• Fall in Revenue: For the half-year ended 30^th June 2021, the company reported revenue amounting to ~$2.5 million as compared to ~$6.2 million in 1H FY20.
• Improvement in Losses: BRU witnessed an improvement in loss after tax to ~$6.2 million against a loss of ~$22.64 million in 1H FY20.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Crude Price Risk: The company’s operational and financial health could be impacted by any adverse movement in crude oil prices.
• Climate Risk: BRU is exposed to the risk arising from the change in climate, as it may interrupt its drilling operations.

Outlook: As of now, the company has planned Ungani 8 well, which is likely to be drilled at the conclusion of the Rafael 1 exploration well to increase field production in the future. Looking forward, the company is targeting to be net zero emission by 2050 and it would be focused on the optimization of Ungani production system.

Stock Recommendation: As on 30^th June 2021, the company had cash and cash equivalents of ~$35.24 million against ~$21.42 million as on 31^st December 2020. The stock of BRU is trading below its 52-week low-high average of $0.086 - $0.225, respectively. The stock has been corrected by ~22.58% in the past one month, offering decent opportunity for accumulation.  On a TTM basis, BRU is trading at a price to book value multiple of 1.3x against the industry median (Oil & Gas) of 2.2xm thus seems undervalued. Considering the valuation on TTM basis, improvement in losses, decent liquidity position, deleveraged balance sheet, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.120, up ~4.347% as on 15^th October 2021.

BRU Daily Technical Chart, Data Source: REFINITIV 

Keytone Dairy Corporation Limited

KTD Details

Opening Orders of $1.8 Million: Keytone Dairy Corporation Limited (ASX: KTD) is a manufacturer, packer and exporter of dairy and nutrition products. Recently, KTD inked a contract with Theland for substantial opening orders of its private-label whole and skim milk powder, bound for China. The company has already received opening orders of around $1.8 million and is likely to deliver in the December 2021 quarter.

• In the month of September 2021, the company wrapped up an expansion and upgrade of its state-of-the-art snacking and bar line and manufacturing plant in Prestons, Sydney.
• The company commenced commercial runs for clients in the same month and also received strong opening orders.

Q2 FY22 Financial Summary:

• Decent Growth in Sales: During the quarter, the company recorded consolidated sales of $15 million, reflecting a growth of 10% against Q2 FY21.
• Record Sales High: In the month of September 2021, the company witnessed a record consolidated sales high of $5.7 million, indicating a material increase in the annualised run rate against the performance of FY21.

FY21 Financials Summary:

• Sales Growth: During FY21, KTD witnessed record sales growth in all its business divisions, evident by the growth of over 125% in sales to $50.7 million against $22.5 million in FY20.
• Rising Gross Profit: Gross profit for the year surged by 111% to $10.7 million against $5.1 million in FY20.

(Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Challenges: The company’s business model is exposed to risk arising from the uncertainties in relation to the pandemic.
• Stiff Competition: The company’s operational and financial performance could be impacted by the rising competition from peers and changing consumer sentiments.
• Forex Headwinds: KTD’s financial statements are exposed to risks arising from adverse movement in exchange rates.

Outlook:

• For the remaining FY22, the company holds a robust sales pipeline on the back of new contract wins.
• KTD is optimistic that 2H FY22 is likely to be very strong on the back of the existing sales pipeline and with the key New South Wales and Victorian states emerging from prolonged lockdowns.
• Moreover, the company’s future growth is likely to be supported by the capital raising of $12.5 million in FY21.
• The company has scheduled to conduct the 2021 Annual General Meeting on 28 October 2021.

Stock Recommendation: At the end of FY21, the company had a cash balance of $4 million as compared to $4.4 million as on 30^th June 2020. In addition, KTD had borrowing of $0.9 million as on 30^th June 2021. The stock of KTD is trading near to its 52-week low level of $0.110, offering decent opportunity for accumulation. The stock of KTD has been corrected by ~1.92% and ~14.99% in the past one and three months, respectively. On a TTM basis, KTD has an EV/Sales multiple of 0.9x against the industry median (Consumer Non-Cyclicals) of 1.6x, implying undervaluation. Considering the valuation on a TTM basis, strengthened sales pipelines, rising sales, decent liquidity position, decent outlook, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.120 as on 15^th October 2021, 11:39 AM (GMT+10), Sydney, Eastern Australia.

KTD 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.

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