Galaxy Resources Limited

Quarterly Activities Report: Metal & Mining sector company, Galaxy Resources Limited (ASX: GXY) recently presented its quarterly (Jan-Mar’19) activities report where it highlighted operational update at Mt Cattlin, Sal de Vida project, and James Bay project. It reported zero debt along with closing cash and liquid assets of US$285.3 Mn.As per production & sale statistics, total mined volume at Mt Cattlin increased by 18% to 1,168,120 bcm in Q1 2019 from 988,387 bcm in Q4 2018. With respect to Sal de Vida Project, the company states that civil earthworks for the construction of a 15-hectare test pond were 94% complete as at 31 March 2019.


NEV subsidies comparison (2018 vs 2019) in the Chinese market (Source: Company Reports)

Economic Outlook: The company is bullish on the global lithium demand especially because Chinese new energy vehicle (“NEV”)market is picking up.The China Association of Automobile Manufacturers (“CAAM”) reported total NEV production and sales of approximately 278,000 and approximately 275,000 vehicles, respectively in Q1 2019, reflecting a growth of 88% and 95% YoY compared to the same period in 2018.

What To Expect From The Company: In its Mt Cattlin Q2 2019 Production Guidance, the company plans total spodumene production volumes in the range of 45,000 dmt to 50,000 dmt in Q2 of 2019 and 180,000 dmt to 210,000 dmt for the full calendar year.In Sal de Vida project, a series of other engineering trade-off and value-add activities will commence in Q2 2019, focused on advancing project engineering and identifying any potential capital reduction opportunities. For James Bay project, in March, the Canadian Environmental Assessment Agency confirmed that the Environmental and Social Impact Assessment for the James Bay Project is consistent with the EIS Guidelines resulting in the file moving to the next step of evaluation which could mean that there is a final recommendation as quickly as within 12 months.

Stock Recommendation: Due to concerns relating to decrease in Lithium prices over weakness in the Chinese demand, GXY’s share witnessed huge sell-off. Its EBITDA margin and net margin for FY18 stood at 35.3% and 97.6% better than the industry median of 29.6% and 13.2% respectively, implying its decent financial position than its peer group. Its current ratio stood at 2.96x better than the industry median of 1.51x, which implies better liquidity position to meet its short-term obligations.
Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $1.635 per share (down 11.622% on April 18, 2019).
 

GrainCorp Limited

International Trade Tensions & Ongoing Drought Affects GNC: Consumer Staples sector company, GrainCorp Limited (ASX: GNC) recently announced that its Grains business unit had experienced a disruption to grain trading conditions over the last six weeks of its half year reporting period to 31 March 2019, primarily due to the impact of international trade tensions on grain flows coupled with the impact of ongoing drought conditions in the eastern Australia.

In another update, the company announced demerger of MaltCo, and integration of Grains and Oils to form New GrainCorp. The separation of the portfolio is expected to boost shareholder’s value, as the core focus will be on boosting two separate businesses with separate Board and Management.


FY18 Financial Metrics (Source: Company Reports)

What To Expect From The Company: The demand for craft and Mexican style beers is growing, which is expected to boost the Malt business. Grains’ utilisation of take-or-pay rail contracts will again be constrained with tight supply as well as limited export volumes anticipated. More recent rain in the northern regions is positive for the summer crop plantings, however it is early in the cycle and further rain will be beneficial while the planting window remains open.

Stock Recommendation: Its EBITDA and net margin for FY18 stood at 5.1% and 2.1% lower than the industry median of 12.4% and 5.7%, respectively. Currently, the stock is trading slightly towards the 52-week higher level of $9.960. Hence, considering the aforesaid facts and current trading level, we maintain our “Expensive” recommendation on the stock at the current market price of $9.200 per share (down 2.232% on 18 April 2019).
 

G8 Education Limited

G8 Announces 2019 AGM Presentation: Consumer Discretionary sector company, G8 Education Limited (ASX: GEM) recently released 2019 Annual General Meeting presentation where it reported re-election of Directors named Mark Johnson and David Foster. Majority of shareholders also approved issuance of performance rights to CEO and Managing Director.
 

The Chairman of the Company highlighted that in 2018 the company acquired 16 early education centres and divested 8 centres in Australia, bringing the total number of centres to 502 in Australia and 17 in Singapore as at December 31, 2018. Its EBIT decreased by 12.7% to $136.3 Mn. Cash flow generation continued to be strong, with $105.9 million in operating cash flows being generated and $48.1 million being paid in dividends to shareholders.

CY18 P&L Statement (Source: Company Reports)
 

What To Expect From The Company: As per the report, the company expects that the occupancy and profit growth will be weighted towards the second half of the year due to the timing of delivery of the Group’s strategic initiatives; $3 Mn of first half investment costs in CY19 centres; and ramp-up of prior year greenfield centres.

Meanwhile, the stock has delivered a decent return of 35.81% in the span of past three months but, in the past one month, it posted negative return of 5.19%. At current level, the stock is available at P/E of 18.60x with the market cap at ~$1.4 billion. The annual dividend yield for the stock comes in at 6.16% which can be considered at the decent levels and might attract the interest of market players. Hence, considering the aforesaid facts and current trading level, we maintain our “Hold” rating on the stock at the current market price of $2.920 per share (down 4.575% on April 18, 2019).

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