Stocks’ Details
 

Viva Energy Group Limited

March Quarter Highlights: Viva Energy Group Limited (ASX: VEA) is a leading energy company in Australia which supplies around a quarter of the country’s liquid fuel requirements. On 9 April 2020, the company provided an update, wherein it informed that its Retail segment has performed well during the 2020 March quarter with the Alliance network achieving average sales volumes of 62.4 million litres per week in the period. Further, the company’s commercial sales volumes in the March quarter were in-line with the same period last year. For the quarter, the company reported actual Geelong Refining Margin of US$2.7/Barrel (BBL), with a refining intake of 10.8MBBLs.


March Quarter Highlights for Refining (Source: Company Reports)

Covid-19 Update: During the March quarter, the company witnessed a weaker margin environment caused by COVID-19. The company has assured that till now its Transport, Marine and Specialties businesses have been relatively unaffected by COVID-19, however, demand from Aviation sector is expected to decline by around 80 – 90% as a result of travel restrictions currently in place.

Forward Plan: The company has decided to lower its capital expenditure guidance for FY20 to approximately $60 – 80 million, so that, it could preserve cash and minimise the risk associated with commencing projects in an environment where social distancing and infection management restrict the ability to have large gatherings of workers. Further, the company is planning to return to shareholders all of the $680 million in after tax cash proceeds that it received after realising its investment in Viva Energy REIT in February 2020, through a combination of off-market and on-market buy-backs.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

EV/EBITDA Multiple Approach (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company currently enjoys a strong balance sheet with decent liquidity position. The stock of VEA is trading near to its 52 weeks low price of $1.125, providing investors a decent opportunity for accumulation. We have valued the stock using EV/EBITDA multiple approach and have arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken peers like Oil Search Ltd (ASX: OSH), Caltex Australia Ltd (ASX: CTX), Beach Energy Ltd (ASX: BPT), etc. Considering, the company’s decent performance over the March quarter, its recent actions to preserve cash, strong balance sheet and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.345, up by 5.078% on 9 April 2020, owing to the decent March quarter performance. 

Perenti Global Limited

Undertaking Capital Management Initiatives Amid Covid-19 Pandemic: Perenti Global Limited (ASX: PRN) is a global mining services group with operations and offices across 13 countries and is involved in some of the world’s largest surface and underground mining projects. National Australia Bank Limited recently became a substantial holder of the company by holding 6.664% voting power in the company. In response to the COVID-19 pandemic, the company has recently announced various capital management initiatives focused on strengthening the company’s financial position. As a result of these measures, the company has decided to defer the payment of its HY20 interim dividend of 3.5 cents per share until 20 October 2020.

Withdrawal of FY20 Guidance: As per the company’s update released on 24 March 2020, till now COVID-19 has had no impact on Perenti’s financial performance. However, considering the uncertainty around the impact of Covid-19 on the company’s operations, Perenti Global Limited has decided to withdraw its FY20 guidance of $115-$120 million underlying NPAT(A). The company has assured that it will continue to focus on capital management as part of its 2025 Group strategy to ensure Perenti is well positioned to deliver through all economic cycles.

H1FY20 Highlights: Over the first half of FY20, the company’s underground mining business, across Australia and Africa, performed exceptionally well, with Underlying EBITDA growing by 10.6% over pcp to $222.0 million. During the period, the company generated strong operating cash flow of $104 million. As at 31 December 2019, the company had a robust balance sheet with cash reserves of $243.7 million. 


H1FY20 Results Snapshot (Source: Company Reports)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

EV/EBITDA Multiple Approach (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of PRN is trading near to its 52 weeks low price of $0.450, providing investors an opportunity for accumulation. For H1FY20, the company reported gross margin of 31.1%, higher than the gross margin of 28.6% reported in PCP. For the same period, the company has a current ratio of 2.66x, higher than the industry median of 1.7x, demonstrating that the company is well positioned to pay its short-term obligations. We have valued the stock using EV/EBITDA multiple based relative valuation and arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken peers like Macmahon Holdings Ltd (ASX: MAH), Sandfire Resources Ltd (ASX: SFR) and Orocobre Ltd (ASX: ORE) etc. Considering the company’s recent capital management initiatives undertaken to maintain strong financial position, its decent H1FY19 results, and its liquidity position, we give a “speculative buy” recommendation on the stock at the current market price of $0.785, up by 27.642% on 9 April 2020. 
 

Venus Metals Corporation Limited

Applications Lodged for Two New Exploration Licences: Venus Metals Corporation Limited (ASX: VMC) is a metal and mining company with wide ranging portfolio of Australian gold and battery-associated metals exploration projects in Western Australia. The Company recently lodged applications for two new exploration licences E30/519 and E30/520 which hosts several substantial historical gold mining centres. The new project area is now called “Henderson Gold-Nickel Project”. 

Five High Priority Em Anomalies at Penny West Deep South Project: On 7 April 2020, Venus Metals Corporation Limited and its Venture partner Rox Resources Limited released the final results from the Xcite electromagnetic survey (HEM) at the Penny West Deep South Project. The results highlighted that the five high priority anomalies (PWDS1 to PWDS3, PWDS5 and PWDS13) are most significant as they lie south and along strike from the Penny West gold deposit and are adjacent to the interpreted Youanmi Shear Zone.

Cash flow Position: During the six months ended 31 December 2019, the company used around $1.87 million of cash for operating activities. This included $1.66 million paid to suppliers and employees. As at 31 December 2019, the company has a cash and cash equivalent of around $6.12 million. For the half year period, the company reported a revenue of $52,445 and loss of $1.55 million.

Cash Used in Operating Activities (Source: Company Reports)

Stock Recommendation: In the last six months, the stock of VMC has provided a return of 6.06% to its shareholders and is currently trading below the average of 52-week high and low price. If compared to previous half year period, the company’s operating ratios have improved significantly in H1FY20. Considering the company’s recent progress at its exploration assets, improving margins, and its current trading levels, we have a watch stance on the stock at the current market price of $0.180, up by 2.857% on 9 April 2020. 

 
Comparative Price Chart (Source: Thomson Reuters)

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