Coronado Global Resources Inc

CRN Details

Completion of Retail Entitlement Offer: Coronado Global Resources Inc (ASX: CRN) produces and exports a range of metallurgical coals. It operates a portfolio of coal mines in Australia (Queensland) and the US (Pennsylvania and Virginia). It runs Curragh, Buchanan, Logan, and Greenbrier projects. As of 18 June 2021, the market capitalisation of CRN stood at ~$1.29 billion. On 17 June 2021, CRN notified that AustralianSuper Pty Limited now holds 159.97 million CDIs with 9.54% voting rights lower than 11.2% voting rights held previously. On 5 May 2021, CRN announced the close of its Institutional Entitlement Offer and raised ~$114 million at $0.45 per new CDI.

On 28 May 2021, CRN announced the completion of its noun-renounceable retail entitlement offer of issue of 1 for 4.73 CDIs on a pro-rata basis. CRN raised ~$12 million at $0.45 per new CDI from the retail offer. It will allocate ~13 million new CDIs not taken up by the eligible shareholders to the sub-underwriters totalling gross proceeds of ~$18 million from the retail offer. CRN expected to raise ~$132 million funds via the entitlement offer, which is part of the company’s complete refinancing package. The funds received from the offer will be utilised to repay drawn balances from the Syndicated Facilities Agreement and strengthen the liquidity position.

Key Takeaways from Q1FY21 (March Quarter): The Group reported US$376 million of revenue in Q1FY21, up by 1% on a QoQ basis. The Group’s ROM coal production was reported to be 6.8 Mt in Q1FY21, up by 0.9% on a QoQ basis due to lower production from its Curragh Australian operations. The saleable production of the Group stood at 4.6 Mt in Q1FY21, up by 2.5% on QoQ owing to recovery of demand to pre-COVID-19 levels in the US. The realised metallurgical coal price for both the US and Australian operations was higher per tonne (FOB) in Q1FY21 versus Q4FY20.

Trend of Revenue & Net Income; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of interest rate on its borrowings and foreign exchange changes impacting its US operations. It is exposed to the COVID-19 impact on its coal demand and inventory levels.  

Outlook: CRN expects saleable production to increase in the range of 18-19 Mt in FY21. It estimates capital expenditure between US$135-$155 million and mining cost per tonne sold to be US$57-$59 for FY21. CRN has an outstanding receivables (US$57.8 million) position with XCoal as of 31 March 2020. It expects to receive the outstanding trade receivables balance from Xcoal by 30 September 2021.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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 CRN gave a positive return of 28.57% in the past month and a negative return of 18.26% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level of $0.497-$1.278. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount than its peer average, considering its lower sales volume, and increased net debt in Q1FY21 vs Q4FY20, and increase in mining cost per tonne sold in Q1FY21. For this purpose, we have taken peers like Whitehaven Coal Limited (ASX: WHC), New Hope Corporation Limited (ASX: NHC), South32 Limited (ASX: S32) and others. Considering the current trading levels, increase in ROM production, revenue, and realised coal price in Q1FY21, decent outlook, valuation, and associated COVID-19 uncertainties, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.810, up by 5.194% on 18 June 2021.

CRN Daily Technical Chart, Data Source: REFINITIV 

Perenti Global Limited

PRN Details

Contract Awarded for SFR’s Motheo Copper Project: Perenti Global Limited (ASX: PRN) is a provider of surface mining, underground mining, and mining support services. As of 18 June 2021, the market capitalisation of PRN stood at ~$493 million. On 11 June 2021, PRN announced the issue of 4.75 million shares/rights under ASX code PRNAC on 4 June 2021. On 9 June 2021, PRN announced the contract award to its surface mining arm, African Mining Services (AMS), from Sandfire Resources Limited (ASX: SFR). AMS will provide mining services at the Motheo copper project in Botswana. The contract is initially for seven years at an estimated value of $648 million. The award of the project is subject to the mining licence clearance and implementation of the final contract.

Key Takeaways from 1HFY21: PRN posted $1,056.18 million of revenue in 1HFY21, up by 4.9% YoY. However, its statutory loss stood at $63.8 million in 1HFY21 versus $38.24 million profit in 1HFY20 due to increased finance and labour costs and asset impairment. Besides, it declared an interim dividend of 3.5 cents per share, unfranked during 1HFY21. PRN generated higher net cash inflows from operating activities of $134.18 million in 1HFY21. It held a cash and cash equivalent balance of $219.53 million in 1HFY21.

Key Trends from FY16-FY20; (Analysis by Kalkine Group)

Key Risks: The company experienced the impact of COVID-19 on the demand of its surface mining business, delays in project and pipeline opportunities, and contraction in the labour force. It also faces the adverse effect of the strengthened AUD on its USD denominated foreign earnings.

Outlook: As per the Motheo project agreement, AMS will establish a joint venture (70:30) with local partners in Botswana. The partnership agreement is expected to be formalised in early CY22. PRN has $5.5 billion of current order book as of 31 December 2020 and $9.2 billion tender pipeline.   

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: 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 company has registered a four-year CAGR of 28.8% in revenue from FY16 to FY20. The stock of PRN gave a positive return of 2.96% in the past month and a negative return of 34.12% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.637-$1.555. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer average, considering its statutory loss in 1HFY21, the impact of COVID-19, foreign currency changes, and lower performance of the Surface Africa and Investments businesses. For this purpose, we have taken peers like NRW Holdings Limited (ASX: NWH), Macmahon Holdings Limited (ASX: MAH), Emeco Holdings Limited (ASX: EHL) and others. Considering the current trading levels, higher operating cash flows and outperformance of the underground mining segment in 1HFY21, valuation, and associated risks of COVID-19 on the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.695, down by ~0.715% on 18 June 2021.

PRN 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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