Metarock Group Limited

MYE Details

Metarock Group Limited (ASX: MYE) provides mining contracting services such as roadway construction, longwall relocation, ventilation, and conveyors. Some of its projects include Aquila Mine, Integra Mining Service, Broadmeadow, Ulan West Mine, Grosvenor, Moranbah Mine, and Wambo Mine.

H1FY22 Results Spotlight:

• The acquisition of PYBAR Mining Services uplifted the company’s position in underground mining services. During the half-year period, the company accomplished significant milestones in operations at Crinum Mine and Cook Colliery Mine.
• Following death of a worker at the Moranbah North underground mine, the company suspended its mining operations. It intended to restart the operations in Q4FY22 after assessing safety protocols.
• Forward order book swelled from $1.1 billion to $1.9 billion, of which $245 million will be delivered in H2FY22. And 83% of FY23 revenue is under contract.
• It had clocked revenue growth of 62% over the last year to $180 million. Normalized EBITDA reached $16.6 million before adjusting for one-off impacts.
• The company secured the Maxwell Drift project through PYBAR Mining Services, which will contribute ~$55-65 million to FY23 revenue.
• MYE achieved free cash flows of ~$4.77 million resulting from favourable working capital movements. The cash balance stood at ~$13.15 million as of December 31, 2021.

Key Financial Highlights (Analysis by Kalkine Group)

Key Risks: Fatal incidents at its mining operations may lead to suspension of mining operations. And this may severely impact its profitability. Ageing mining fleets and equipment may bring a cost burden. Exploration delays by miners may affect the order book and timing of revenue realization.

Outlook: New Mastermyne contracts in NSW unlock additional revenue in FY23. The company commences its Cook Colliery Mining Service Agreement with immediate effect and is expected to reach the full run rate of the project by early FY23. It is anticipating FY22 revenue to be in the range of $450-480 million and EBITDA of $37-43 million.

Valuation Methodology: EV/EBITDA 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 MYE has been corrected by ~35.62% in the past three months. The stock of MYE just recovered from its 52-week low price of $0.465. The stock has been valued using an EV/EBITDA multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the negative ROE and high debt-to-equity ratio when compared to the industry. For the purpose of valuation, peers such as Mitchell Services Ltd (ASX: MSV), Macmahon Holdings Ltd (ASX: MAH), DDH1 Ltd. (ASX: DDH), and others have been considered. Considering the synergies from the acquired PYBAR Mining Services, decent order book, an uptick in top-line and bottom-line results in H1FY22, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.480 as on 19 May 2022, up ~2.13%.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

MYE Daily Technical Chart, Data Source: REFINITIV 

Altech Chemicals Ltd

ATC Details

Altech Chemicals Ltd (ASX: ATC) is an alumina exploration company. It supplies ~99.99% (4N) HPA (Aluminum oxide (Al2O3)). Through synthetic sapphire, ATC caters to the sapphire/ light-emitting diode industry and the lithium-ion battery industry.

Recent Business Developments and Q3FY22 Highlights:

• On May 17, 2022, ATC issued ~900.5k fully paid ordinary shares in lieu of exercise of stock options.
• On May 3, 2022, Deutsche Balaton Aktiengesellschaft, Heidelberg, Germany, along with three other entities, increased its stakes in ATC from 15.82% to 17.02%.
• ATC received positive feedback from the preliminary study for the 10ktpa Silumina Anodes project. The project is expected to yield an NPV of US$507 million (before tax) with an IRR of 40%.
• It had appointed Kuttner Engineering as the pilot plant engineer for its battery materials project.
• It plans to issue green bonds with interest received from over 80 investor groups. The company intended to use the proceeds to fund the Johor HPA project.
• The drilling program at the Kerrigan project returned with inferred resources of 125 million tonnes.
• ATC is expecting the project cost to be US$95 million for the Silumina Anodes project.
• Due to nil cash receipts from its customers, ATC posted negative operating cashflows of $1.65 million. It had closed the period with a cash balance of ~$11.57 million as of March 31, 2022.

Financial Model Summary of Silumina Anodes Project (Analysis by Kalkine Group)

Key Risks: ATC has nil revenue-generating assets. Any delays in exploration may drain its existing liquidity. Increasing global supply chain concerns and labour shortages may affect ongoing drilling programs.

Outlook: ATC to commence final pilot plant engineering at its battery materials project. It had signed NDA with two German automakers and one European battery maker. The aircore drilling at Kerrigan reported an increase of 47% in kaolin tonnage when compared to the previous estimate. This provides confidence and the potential to modify low-grade areas.

Stock Recommendation: The stock of ATC has been corrected by ~33.33% in the past three months. The stock of ATC is trading below to the average of the 52-week low-high price band of $0.041-0.150. On a TTM basis, the stock is trading at a Price-to-Book Value multiple of 1.1x, as compared to the industry median of 2.1x (Metals & Mining). This indicates the stock is undervalued at current trading levels. Considering the positive results from the preliminary study at its Silumina Anodes project, new NDA signed with automakers in Germany for battery materials, proposal to issue green bonds, valuation based on TTM, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.070, as on 19 May 2022, down ~1.41%. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

ATC 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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