Energy Resources of Australia Limited

ERA Details

Ranger Rehabilitation Project Update: Energy Resources of Australia Ltd (ASX: ERA) is into mining, processing, and commercialisation of uranium oxide. Incorporated in 1980, it owns two undeveloped uranium resources in Ranger 3 Deeps and Jabiluka. Though ERA is unable to give the exact picture of the estimate, but it stated in the release of 19^th November 2021 that its current Mine Closure Plan is overrunning its cost and schedule.

3QFY21 Activities & 1HFY21 Updates:

• As per its quarterly activities report, the refurbishment program at Jabiru housing continues its progress, whereas on the other hand, there was no production of uranium oxide during the September quarter.
• The Ranger Authority ceased the Ranger Mine’s processing operations on 8^th January 2021.
• Floor and wall cleaning are well progressed at the Tailings Storage Facility (TSF), and ERA continues to rectify housing in Jabiru.
• Due to the end of long-term sales contracts in 2021 and lower sales, its revenue from uranium oxide sales was down by ~68% to ~$53.47 million for 1HFY21 vs ~$168.16 million in 1HFY20. This, in turn converted its net profits of $40.22 million in 1HFY20 to net losses of $5.26 million for its 1HFY21.
• Cash outflow was reported as ~$13 million from operating activities and the cash balance for the period ending 30^th June 2021 was ~$190.53 million.

Revenue from Uranium Oxide Balance Highlight (Source: Analysis by Kalkine Group)

Key Risks & Mitigations: The company is vulnerable to the risks associated with the impacts of COVID19 and the new variant Omicron, which affects its operations and thus impacts sales. Other risks are its operational dependency on labours and profitability impact due to price fluctuations in uranium oxide.

Outlook: Considering the complexity and importance of the re-forecast exercise related to the Ranger Project, it intends to appoint a global engineering company to assist in reassessing and re-forecasting the estimates, which is expected to be held during 1QFY22.

Stock Recommendation: The stock of the company has given a return of ~37.73% in the past six months. Currently, the stock is trading below the average of its 52-week low and high levels of $0.180 and $0.580, respectively. On a TTM basis, the stock of ERA is trading at a P/B multiple of 6.5x, lower than the industry’s mean (Uranium) of 6.9x, thus seems to be undervalued. Considering its updates on Ranger Mine estimation updates, current trading levels, valuation on a TTM basis, improving quick ratio, nil debt levels, returns that the stock has given, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.360, 10:30 AM (GMT+10), Sydney, Eastern Australia, as on 6 January 2022. 

ERA Daily Technical Chart, Data Source: REFINITIV

Opthea Limited

OPT Details

Appointment of Prime Personnel: Opthea Limited (ASX: OPT) is a biopharmaceutical company operational at the clinical stage, which develops therapies to treat retinal diseases. OPT was incorporated in 1984, and it has OPT-302 as its main product candidate. As announced on 3 January 2022, Ms Judith Robertson was appointed as the first Chief Commercial Officer (CCO), effective from 1 January 2022. She will be the prime person for the commercialisation of OPT-302 in the U.S. and globally.

Upcoming Event & Other News:  

• The company’s CEO – Dr Megan Baldwin, will be participating in the H.C. Wainwright BIOCONNECT Conference, which will take place from 10^th -13^th January 2022. The presentation will be pre-available for investors on 10^th January 2022.
• On 21^st December 2021, Bank of America Corporation ceased to be its substantial shareholder from a voting power of ~5.67%.

FY21 Highlights:

• The company reported an increase of ~307.7% in net losses, which came in at~US$45.34 million in FY21, where the major amount of ~US$25.89 million was spent on R&D expenditure. At the same time its revenue from ordinary activities was down by ~18.3% Y-o-Y and was reported as ~US$440k in FY21 versus ~US$539k in the pcp.
• OPT closed its accounts at the end of 30^th June 2021 with a decent balance sheet and a cash balance of ~US$118.19 million versus ~US$42.65 million pcp.

Cash Balance Highlight (Source: Analysis by Kalkine Group)

Key Risks & Mitigations: The company is vulnerable to the risks associated with the impacts of COVID-19 and the new variant Omicron. It affects the employees, functions, pre-clinical studies, and clinical trials. The company might find delays in enrolling, initiating, or completing clinical trials.

Outlook: OPT’s focuses on achieving the clinical and commercialisation milestones of OPT-302 (U.S. & globally), for which CCO has been appointed. To enhance its sales, it focusses on its development and ensuring its availability to the global investment and pharmaceutical/biotechnology community about its commercial potential. The company also wants to continue the GMP manufacturing for its Phase III clinical trials, along with development in OPT-302’s co-formulation with biosimilar VEGF-A inhibitor.     

Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)

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 the company has been corrected by ~17.14% in the past nine months. Currently, the stock is trading below the average of its 52-week low and high levels of $1.075 and $2.100, respectively. The stock has been valued using the P/B multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). After considering the expected cyclical effect of Omicron COVID-19, OPT’s financial performance for FY21, its dependency of operations on the results of the clinical trials, extremely high cash cycle days, the company can trade at a slight discount to its peers. For the purpose of its valuation, peers like Immutep Ltd (ASX: IMM), AVITA Medical Inc (ASX: AVH), and Mesoblast Ltd (ASX: MSB) have been considered. Considering the globalisation of its main product, nil debt levels maintained, current trading levels, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the closing market price of $1.285, up by ~0.390%, as on 6 January 2022. 

OPT Daily Technical Chart, Data Source: REFINITIV 

VGI Partners Limited

VGI Details

VG1 & VG8’s Returns Update: VGI Partners Limited (ASX: VGI) was incorporated in 2008. It provides investment management services to VGI Partners Master Fund, VGI Partners Asian Investments Limited (VG8), VGI Partners Global Investments Limited (VG1) and VGI Partners Offshore Fund. VG1’s Net Portfolio Return (After Fees) for 12 months to June 2021 and four months to October 2021 came out to be 25.5% and -6.9%, respectively. While VG8’s Net Portfolio Return (After Fees) for 12 months to June 2021 and four months to October 2021 came out to be 15.0% and -6.9%, respectively.

1HFY21 Updates:

• Total group’s revenue of VGI was up by ~435% to ~$72.78 million for 1HFY21 vs ~$13.59 million in 1HFY20, while the NPAT (normalised) increased by ~335% to $4285 million in 1HFY21 from ~$9.85 million reported in 1HFY20.
• VGI closed its half-year accounts for the period ending 30^th June 2021 with a cash balance of ~$34.63 million versus ~$41.73 million at the end of 1HFY20.

Funds Under Management Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company is vulnerable to the risks associated with unfavourable movement of the foreign exchange and market volatility caused due to COVID19 and its new variant Omicron, which affects its operations and thus impacts the sales.

Outlook: VGI focusses on various strategic initiatives like:

• Expansion of the manager’s team to improve marketing and shareholder engagement.
• Substantial investment strategies on the technological front, including software related to its CRM (Customer Relationship Management).

Besides, VGI has engaged external advisers to review other options for the discount of the Net Tangible Assets (NTA). The manager will expectedly revert the same to Board in the first quarter of FY22.

Stock Recommendation: The stock of the company has given a negative return of ~32.80% in the past six months. Currently, the stock is trading below the average of its 52-week low and high levels of $4.06 and $8.54, respectively. On a TTM basis, the stock of VGI is trading at an EV/Sales multiple of 3.0x, lower than the industry’s mean (Investment Banking and Investment Services) of 10.6x, thus seems to be undervalued. Considering its valuation on a TTM basis, returns from VG1 & VG8, current trading levels, improving EBITDA margins, minimal debt levels in 1HFY21, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $4.60, down by ~1.076%, as on 6 January 2022. 

VGI Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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 the 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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