Stocks’ Details

Tribune Resources Limited

TBR Commences Proceedings against NST’s Subsidiaries for EKJV Venture:Tribune Resources Limited (ASX: TBR) is engaged in the exploration, development and production activities at its East Kundana Joint Venture tenements.Recently, the company commenced proceedings in the Supreme Court of Western Australia against Northern Star subsidiaries, EKJV Management Pty Ltd, Northern Star (Kanowna) Pty Ltd and Gilt-Edged Mining Pty Ltd. The proceeding is related to the East Kundana Joint Venture Agreement, where TBR holds an interest of 36.75% and Rand Mining (ASX: RND) holds a 12.25% interest.The companies are claiming their proportional share of gold produced by the EKJV mining operation to ensure that all parties to the EKJV are treated equally and fairly.

September’19 Quarter Key Highlights: During the September 2019 quarter,the company processed 236,766 tonnes of EKJV ore at the Kanowna Plant. Additionally, 30,454 tonnes of EKJV ore and 0 tonnes of R&T ore was processed at the Greenfields Mill. Rand and Tribune Bullion accounts were credited with 25,016 ounces of gold and 3,550 ounces of silver, with Tribune’s share at 75%.

Net cash inflow from operating activities for the period was reported at ~$2.43 million. Net cash inflow from investing activities for the period was reported at ~$1.9 million. Net cash outflow from financing activities for the period was reported at ~$1.08 million. Cash and cash equivalents at the end of the quarter were reported at ~$62.41 million. In the December quarter, the company expects cash outflow to be ~$35.40 million.


September’19 Quarter Operating Cash Flow Statement (Source: Company Reports)

Financial Health of the company:Its gross margin, EBITDA margin and net margin for FY19 stood at 54.9%, 43.4% and 19.8%, respectively, better than the industry median of 41.1%, 29.1% and 11.0%, implying decent fundamentals for the company. ROE for FY19 stood at 16.6%, better than the industry median of 12.3%, which implies that the company generated a better return for its shareholders than its peer group. Current ratio for FY19 stood at 3.43x, better than the industry median of 1.87x, implying a decent liquidity position for the company. Its return on invested capital for FY19 stood at 32.5%, better than the previous year.

Stock Recommendation: TBR’s stock posted a negative YTD return of 1.82% and is currently trading below the average of its 52-weeks trading range of $3.661 - $8.800. Considering the company’s September quarter performance, decent cash balance, cash outflow estimation for the December quarter and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $5.370, down 0.556% as on 9 January 2020.

Perenti Global Limited

PRN’s African Unit Loses Contract from GMC over Political Issue:Perenti Global Limited (ASX: PRN) has been delivering mining projects in challenging environments over the past 30 years and is one of the largest companies in the world, offering both surface and underground mining solutions. Recently, the company provided expiry/lapse detail about its options to the market in accordance with the terms of the Ausdrill Limited Executive Share Option Plan (ESOP). It highlighted that around 66,668 PRNAA Options issued at an exercise price of $0.1745, under the ESOP (2015) have lapsed.

In another update, the company informed the market about the termination of the equipment hire contract by Ghana Manganese Company (GMC). The contract was entered into with African Mining Services (AMS) at the company’s Nsuta manganese mine in Ghana. This act does not relate to AMS’ performance as advised by GMC, but due to the Ghanaian government directing GMC to cap its production at the mine. With this, PRN now expects its FY20 underlying NPAT to reduce from its previous guidance of $140 million to approximately $115 - $120 million.

On December 2, 2019, PRN announced that its Surface Mining Industry Sector Group (ISG) secured $165 million in new and extended contracts. 


FY19 Key Financial Metrics (Source: Company Reports)

FY19 Key Highlights for the period ended on June 30, 2019:Proforma revenue for the period increased by 14.2% to $1.970 billion, and statutory revenue increased by 89.1% to $1.638 billion. Proforma underlying EBIT increased by 15.4% to $217.0 million, and statutory EBIT increased by 101% to $207.2 million. Underlying net profit after tax (before amortisation) for the period was reported at $103.1 million, beating the guidance of $98.0 million. Statutory net profit after tax for the period was reported at $181.3 million. The Board of Directors declared a fully franked final dividend of 3.5 cents, bringing the full-year dividend to 7.0 cents per share.

Valuation Methodology:Price to Earnings (PE) Multiple Approach

Price to Earnings Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation:PRN’s stock posted a positive YTD return of 1.56% and is currently trading below the average of its 52-week high and low level of $2.400 and $1.090, respectively. The company secured contracts worth $165 million, reflecting its ability in converting pipeline opportunities and extending relationships with customers over may decades in Australia and Africa. Considering the aforesaid facts and current trading levels, we have valued the stock using a relative valuation method, i.e., Price to Earnings (PE) multiple and for the purpose, have taken the peer group - Imdex Ltd (ASX: IMD), Emeco Holdings Ltd (ASX: EHL), Macmahon Holdings Ltd (ASX: MAH), etc. Therefore, we have arrived at a target price of single-digit growth (in % terms). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.675, up 3.077% on January 9, 2020.

Whitehaven Coal Limited

WHC Acquires EDF Trading Australia Pty Limited:Whitehaven Coal Limited (ASX: WHC) is involved in the development and operation of coal mines in New South Wales. On January 2, 2020, the company announced the completion of the acquisition of EDF Trading Australia Pty Limited, which owns a 7.5% interest in the Narrabri underground mine, taking the stake of WHC in the mine to 77.5%. The total consideration for the acquisition has been reported at US$72 million, where US$17 million was paid on completion with remaining purchase price payable in equal instalments of US$11 million over the next five years. This activity will assist WHC in enhancing its majority stake in one of Australia’s most productive underground mine.

On December 5, 2019, the company updated its outlook for FY2020. Managed ROM coal production now is expected to be in the range of 20.0 - 22.0 Mt, as compared to the previous guidance of 22.0 to 23.5 Mt. Managed coal sales are now expected to be between 19.0 and 20.0 Mt as compared to the previous guidance of 20.0 to 21.0 Mt.


Revised FY20 Guidance (Source: Company Reports)

September’19 Quarter Key Highlights:Run on mine (ROM) coal production for the period increased by 22% (on pcp) to 4.4Mt. Saleable coal production for the period increased by 23% (on pcp) to 4.9Mt. Coal sales for the period increased by 14% (on pcp) to 5.5Mt.

Financial Health of the company:Its gross margin, EBITDA margin and net margin for FY19 stood at 54.6%, 59.1% and 21.2%, better than the industry median of 44.3%, 32.2% and 15.3%, respectively, implying decent fundamental for the company. ROE for FY19 stood at 15.1%, better than the industry median of 13.2%. Debt to equity ratio for FY19 stood at 0.12x, lower than the industry median of 0.24x.

Valuation Methodology:EV/Sales Multiple Approach

EV/Sales Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock posted a negative YTD return of 1.95% and is currently trading close to its 52-week low of $2.490, proffering an opportunity for share accumulation. Considering the company’s September Quarter production data, revised FY20 outlook, and current trading levels, we have valued the stock using one relative valuation method, i.e., Enterprise Value to Sales multiple approach and have taken the peer group - South32 Ltd (ASX: S32), Rio Tinto Ltd (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG). As a result, we have arrived at a target price of lower double-digit growth (in % terms). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $2.570, up 1.984% on 9 January 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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