New Hope Corporation Limited

NHC Details

Subsidiaries to Enter Joint Marketing Deal: New Hope Corporation Limited (ASX: NHC) is a diversified energy company. The company is primarily engaged in coal mining, oil and gas, marketing and logistics, and investments. NHC’s wholly-owned subsidiaries Vintage Energy Ltd., Metgasco Ltd, and Bridgeport Pty Ltd has been recently authorised by the Australian Competition & Consumer Commission (ACCC) to enter into joint gas marketing agreements. The subsidiaries may now jointly market gas produced from the Vali gas field for the next five years. Within these five-year periods, the company is likely to enter into gas supply agreements with customers for up to 15 years.

1HFY21 Financial Highlights: NHC has registered a decline in its revenue to $405.52mn in 1HFY21 against $618.20mn in 1HFY20, due to lower coal production and a low-price realisation. The company has posted a loss of $55.37mn in 1HFY21, mainly on the back of impairment of assets. The company has seen an improvement in its cash position to $114.81mn as on 31 January 2021 against $70.37mn as on 31 July 2020.

Key Highlights (Source: Company Reports)

Key Risks: The company deals in multiple currencies. Thus, any adverse movement in foreign exchange currency prices may lead to financial losses for the company. Moreover, the company is exposed to climate change risk, any adverse climatic conditions such as Earthquake, Floods, etc., that may lead to discontinuation of business for an indefinite period.

Outlook: NHC expects a positive outlook for 2HFY21. The company expects an improvement in its underlying profits with strengthening of the coal prices, going forward. Bengalla Project is likely to deliver an increased production by maintaining a low-cost production environment for the operation. NHC has witnessed a recovery in the thermal coal prices from US$50 per tonne to US$90 per tonne currently. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: The stock of NHC gave a return of ~-11.27% in the last one month and a return of ~-4.83% in the last three months. The current market capitalisation of NHC stands at ~$953.04mn as of 13 May 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$1.050-~$1.595. On the technical analysis front, the stock has a support level of ~$1.028 and a resistance of ~$1.414. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some premium as compared to its peer average, considering a decent liquidity position as on 31 January 2021 and an increase in total assets as on 31 January 2021. For this purpose, we have taken peers Whitehaven Coal Ltd (ASX: WHC), Karoon Energy Ltd (ASX: KAR), Armour Energy Ltd (ASX: AJQ). Considering an expectation of increase in coal prices backed with strong demand, new income avenue from gas segment, Bengalla project to contribute with an increased production, associated risks with the business current trading levels and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.185, up by ~3.493% as on 13 May 2021.

NHC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Perenti Global Limited

PRN Details

Latest Update on Operational Performance: Perenti Global Limited (ASX: PRN) is engaged in the business of surface mining, underground mining, and mining support services. The company has updated its operational performance on 13 May 2021. The company has reported more than $700mn of contract awards since 31 December 2020. Furthermore, the company has also been awarded with $320mn of LOI (Letter of Intent), indicating support from the North American markets for providing underground services. The company has enhanced the growth pipeline by more than 20%, which includes underground gold and nickel exploration opportunities in Australia and North America.

Change of Board of Directors: Mr. Ian Cochrane has stepped down from his position of Non-Executive Chairman with PRN due to health reasons as reported on 10 May 2021. The board has appointed Mr. Robert Cole as the new Chairman with an immediate effect and in the process to appoint a new Non-Executive Director.

1HFY21 Financial Highlights: The company has registered an increase in revenue to $1,056.18mn in 1HFY21 against $1,006.87mn in 1HFY20. Due to higher finance & labour cost and impairment of assets, PRN has posted a loss of $63.79mn in 1HFY21 against a profit of $38.24mn in 1HFY20. The company has seen a decline in its cash and cash equivalent position to $219.53mn as on 31 December 2020 against $327.49mn as on 30 June 2020.

Revenue and Profits (Source: Company Reports)

Key Risks: The company is witnessing a contraction in Australian labour market, which has resulted in higher labour cost leading to pressure in business margins. Moreover, the company deals in multiple currencies. Thus, any adverse movement in foreign exchange currency prices may lead to financial losses for the company.

Outlook: Due to current challenges related to Covid-19 and the tight Australian labour market, the company has revised its estimates for 2HFY21. PRN now expects 2HFY21 to be softer than 1HFY21 against its previous estimates mentioning 2HFY21 to be consistent with 1HFY21. PRN expects the current challenges to remain beyond FY21 and likely to see a delay in expected revenue and earnings growth in FY22. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: The stock of PRN gave a return of ~-35.21% in the last one month and a return of ~-51.91% in the last three months. The current market capitalisation of PRN stands at ~$686.68mn as of 13 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.685-~$1.600. On the technical analysis front, the stock has a support level of ~$0.609 and a resistance of ~$0.969. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount as compared to its peer average, considering a decline in its liquidity position as on 31 December 2020, softer outlook for 2HFY21, expecting delay in growth for FY22 and registered a loss in 1HFY21. For this purpose, we have taken peers MACA Ltd (ASX: MLD), Mount Gibson Iron Ltd (ASX: MGX), Macmahon Holdings Ltd (ASX: MAH) to name a few. Considering an increase in contracts awarded, increase in revenue, associated risks with the business and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.690, down by ~29.231% as on 13 May 2021. The stock prices have taken a sharp fall on the back of subdued outlook for 2HFY21 and expectation of delay in expected revenue and earnings growth for FY22. We believe that current challenges are being faced by the whole industry and these challenges may normalize in long run.

PRN Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: 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.

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