Origin Energy Limited

ORG Details

Signed an Agreement for Long-Term Gas Supply: Origin Energy Limited (ASX: ORG) is engaged in energy markets, integrated gas and corporate. The energy markets operations include energy retailing, power generation and liquefied petroleum gas (LPG) operations predominantly in Australia. The company has announced recently regarding signing a non-binding Heads of Agreement (HOA) with Blue Energy Limited. With this agreement Blue Energy will supply 300PJ of gas to ORG from Blue Energy’s Northern Bowen Basin ATP814 coal seam gas tenure for over 10 years. 

Deal Signed for Green Hydrogen Project: Australia’s ORG and Japan’s Kawasaki Heavy Industries has announced regarding their deal today. Both the companies will work towards expansion of green hydrogen project in Queensland and aiming for a production of 36,500 tonnes per annum of green liquid hydrogen. 

Dividend Declared: ORG has recently announced the distribution of dividend to its shareholders. The company has announced a dividend amount of $0.1250, the ex-date for dividend was on 3 March 2021 and the payment date was on 26 March 2021. 

1HFY21 Financial Highlights: The company has registered a decline in its statutory net profits to $13mn in 1HFY21 as compared with $599mn in 1HFY20. The company has registered a decline in its Return on Capital Employed (ROCE) to 6.8% in 1HFY21 as compared with 8.3% in 1HFY20. The company has registered an increase in free cash flow (Energy Market) to $633mn in 1HFY21 as compared with $484mn in 1HFY20.

Statutory Profits (Source: Company Reports)

Key Risks: The company is engaged in providing gas and energy services. Thus, any severe fluctuation in the prices may result in financial losses for the company. The company requires regulatory approvals to carry out business activities, any delay in regulatory approvals may lead to financial losses for the company.

Outlook: As per the company’s updated guidance, the company is expecting a gas production in a range of 685-705 PJ (petajoule) in FY21 from an earlier guidance of 675-705 PJ in FY21. The company is expecting a decline in its underlying EBITDA in FY21 in a range of $1,000-$1,140mn on the back of reduction in electricity gross profit by $200-250mn and a one-off increase in network costs of $40mn.  

Valuation Methodology: EV/Sales Value 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: In the last one month, ORG has decreased by ~1.26% and by ~9.10% in the last three months. The current market capitalisation of ORG stands at ~$8.20bn as of 14 April 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$3.990-~$6.480. On the technical analysis front, the stock has a support level of ~$4.59 and a resistance of ~$4.82. 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 a slight discount as compared to its peer median, considering a decline in statutory profits and a decline in returns on capital employed. For this purpose, we have taken peers Central Petroleum Ltd (ASX: CTP), Armour Energy Ltd (ASX: AJQ), and Australis Oil & Gas Ltd (ASX: ATS). Considering an increase in cash flows, declaration of dividend, valuation, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $4.690, up by ~0.643% as on 14 April 2021.

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

IGO Limited

IGO Details

Latest Update on Drilling Plans: IGO Limited (ASX: IGO) is engaged in exploration and mining activities. The company’s segments include The Nova Operation and Growth. The company is engaged in nickel, copper and cobalt mining and processing at the Nova Operation and non-operator gold mining in the Tropicana Operation. The company has recently announced a diamond drilling plan for its Orion extension in May/June 2021 to be within Boadicea’s Symons Hill License. The company has identified Orion among its high priority project for exploring Nickel-Copper-Cobalt sulphide mineralisation.

Agreement to Sell Tropicana Project: IGO has recently announced regarding its binding agreement with Regis Resources Limited to sell its 30% interest in the Tropicana Gold Mine for a consideration of $903mn in cash. IGO will remain focused on its clean energy supported commodities business.   

1HFY21 Financial Highlights: The company has registered a slight decline in its total revenue and other income to $462.5mn in 1HFY21 as compared with $474.7mn in 1HFY20, on the back of lower production and sales from the Tropicana operations. Similarly, the company has registered a decline in its NPAT to $54.2mn in 1HFY21 as compared with $100.1mn in 1HFY20, on the back of lower price realisations for metals produced and nickel from the Nova operation.\

Key Highlights (Source: Company Reports)

Key Risks: The company is engaged in exploration activities. Thus, any adverse climatic conditions may result in discontinuation of business activities and may lead to financial losses for the company. The company is exposed to fluctuation in the commodity prices, hence, and severe fluctuation in the commodity prices may result in financial losses for the company.

Outlook: As per the company reports, the company has made investments in Havana cutback during FY21 and expecting to progress well from 1QFY22. The company has plans to acquire 49% interest in Tianqi’s Kwinana Lithium Hydroxide Refinery and an indirect 25% interest in Greenbushes through Lithium HoldCo located in Western Australia. This will create synergies and boost company’s revenue, going forward.   

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: In the last one month, IGO has increased by ~5.74% and decreased by ~4.08% in the last three months. The current market capitalisation of IGO stands at ~$5.11bn as of 14 April 2021. The stock is currently trading above the average 52-week price level range of ~$4.028 -~$7.760. On the technical analysis front, the stock has a support level of ~$6.596 and a resistance of ~$7.037. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering the company has enough liquidity to fund its growth and commencement of new diamond drilling to explore mineral resources at Orion extension. For this purpose, we have taken peers Geopacific Resources Ltd (ASX: GPR), Evolution Mining Ltd (ASX: EVN), Strandline Resources Ltd (ASX: STA). Considering an increase in cash position, nil debt position, increase in total assets, associated risks with the company, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $6.810, up by 0.739% as on 14 April 2021. 

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

Galaxy Resources Limited

GXY Details

Update on Sal de Vida Brine Project: Galaxy Resources Limited (ASX: GXY) is primarily engaged in the production of Lithium Carbonate and exploration for minerals mainly in Australia. Its segments include Australian operation, Argentina operation and Canada operation. The company has recently announced that it has completed a feasibility study on its Lithium project “Sal de Vida” located in Argentina. The company has projected a long life of 44 years based on Brine reserve estimate of 1.3Mt lithium carbonate capacity. The project is low operating cost which will be financially viable for the company. 

FY20 Financial Highlights: The company has registered a decline in its operating sales revenue to US$55.29mn in FY20 as compared with US$69.51mn in FY19. The company has reported a loss of US$31.30mn in FY20. The company has seen an increase in its Cash and Cash Equivalents at US$210.43mn as on 31 December 2020 as compared with US$100.90mn as on 31 December 2019.

Cash Position (Source: Company Reports) 

Key Risks: The company is engaged in exploration activities. Thus, adverse climatic conditions may result in discontinuation of business activities and may lead to the company's financial losses. The company requires regulatory approvals to carry out business activities. Any delay in regulatory approvals may lead to financial losses for the company.

Outlook: As per the company reports, the company will continue to undertake research and development activities for the growth of its products. The company is confident in delivering production from Stage one in late 2022. Early works to remain on schedule taking place in 2021, such as well field drilling programme and pond construction commencement. 

Valuation Methodology: EV/Sales Value 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: In the last one month, GXY has increased by ~41.20% and by ~27.43% in the last three months. The current market capitalisation of GXY stands at ~$1.64bn as of 14 April 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.697-~$3.530. On the technical analysis front, the stock has a support level of ~$3.396 and a resistance of ~$3.622. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in cash and cash equivalents, an increase in its total current assets and completion of the feasibility study on its Lithium project. For this purpose, we have taken peers Pilbara Minerals Ltd (ASX: PLS), Mineral Resources Ltd (ASX: MIN), to name a few. Considering, an increase in cash and cash equivalent position, long-life estimation for its Sal de Vida Brine Project with low operating cost, associated risks with the company, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $3.530, up by 8.282% as on 14 April 2021. 

GXY 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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