Stocks’ Details

Syrah Resources Limited

1Q Production Up by 45% against 4Q 2018: Syrah Resources Limited (ASX: SYR) is an industrial minerals and technology company based in Australia. SYR owns the Balama Graphite Project (Balama) in Mozambique. The company has recently announced its quarterly activities report for the period ended 31 March 2019.

1Q 2019 Activities Report- Highlights: The company produced graphite of 48kt in Q12019 at Balama Graphite Operation which was up 45% as compared to Q4 2018, with record production in the month of March at ~19kt. Moreover, the C1 operating cash cost continued to decline and the company completed the Initial Vanadium sampling, facilitating market engagement.


Balama Production Summary (Source: Company Reports)

Net cash outflow was reported to US$14.7 million versus projected US$20 millionwith the difference being ~US$5 million payments timing variance. Cash at the end of quarter stood at US$62.4 million. The company continued to evaluate options and made extensive engagements in developing debt funding during Q1. With strong evidence in volume demand, Syrah sold and shipped 48kt in Q1 2019 versus 37kt in Q4 2018, continued improvement in contract performance and logistics. The end-market demand drivers were positive with 2018 steel production and global electric vehicle sales up 4.6% and 64% respectively.

The loss for the company after income tax for FY18 stood at ~$29.0 million as compared to $12.31 million in FY17.

Outlook: The company expects cash operating costs (FOB Port of Nacala) trending downwards towards $400 per tonne over 2019 for Balama Graphite Operation. With respect to sales and logistics, the company stated that continued higher selling prices is expected from a price premium reflecting cost differential and value in use. It will continue to assess strategic relationship options in downstream production in the Battery Anode Material project.

In the past one month, the stock posted a 2.27% return, and in three months, it posted -25.0% return reflecting higher volatility. The stock experienced a short interest of ~17.76% (as per the ASIC report of 30 April 2019). Going forward, as far as the pricing expectations are concerned, management is of the view that Syrah weighted average price has strongupside potential over the short and medium term. Additionally, management expects a further major reduction in Balama operational and BAM cash draw from Q3 2019. With the significant activities continued in Balama project, ongoing development in Battery Anode Material (BAM) Project, and considering the volatility in the stock price in recent past, we maintain our “Speculative Buy” recommendation on the stock at the current market price of A$1.095 (down 3.097 on 6 May 2019).
 

Galaxy Resources Limited

Strong Balance Sheet Coupled with No Debt: Galaxy Resources Limited (ASX: GXY) is engaged in the production of lithium concentrate and exploration for minerals in Australia, Canada, and Argentina. Recently, the company announced that the Grand Council of the Cree, the Cree Nation Government and the Cree Nation of Eastmain have entered into a Pre-Development Agreement regarding the development of the James Bay Lithium Mine Project, located approximately 10 kilometres south-east of the Eastmain River and 100 kilometres east of the community of Eastmain. Galaxy is also pleased to announce that the Environmental and Social Impact Assessment for the James Bay Lithium Project is complete, this was originally filed to the Environmental and Social Impact Review Committee and the Canadian Environmental Assessment Agency in October 2018.

Financial Performance in FY18: Revenue of the company stood at US$153.9 million in FY18 as compared to US$96.2 million in FY17, an increase by 60% Y-o-Y mainly driven by higher realized selling prices.The company reported a net profit after tax of US$150.2 million which included a gain on sale of US$146.8 million (after-tax) arising from the POSCO transaction. The company reported an EBITDA margin of 35.3% during FY18 which is higher than the industry median of 30.9%.

 
 
Financial Overview Summary (Source: Company Reports)

What to Expect From GXY: The management stated that the operational optimization at Mt Cattlin as well as robust balance sheet underpin the company’s continued commitment to the development of Sal de Vida and James Bay.
Stock Recommendation:Stock yielded negative returns of 40.89% and 22.59% over the past 6 months and three months period, respectively, with the stock trading near to its 52-week low. The stock experienced a short interest of ~15.59% (as per the ASIC report of 30 April 2019). Considering the decent financials in FY18 and the ongoing commitments of the company towards the development of Sal de Vida and James Bay Projects, we give a “Speculative Buy” recommendation on the stock at the current market price of A$1.520 per share (down 4.101% on 06 May 2019).

NEXTDC Limited

Revenue and EBITDA on Rise:NEXTDC Limited (ASX: NXT) is engaged into the development and operation of independent data centers in Australia. The Company is involved in enabling business transformation through data center outsourcing solutions, connectivity services, and infrastructure management software.

Financial Performance in 1H FY19: The revenue of the company was up by 17% to $90.8 million in 1HFY19 as compared to $77.5 million in 1H18, driven by higher contracted utilizations and increase in interconnections. The company reported net loss of $3.1 million in 1HFY19 as compared to net profit of $8.4 million in 1HFY18, primarily impacted by a significant rise in finance costs.
 
The underlying EBITDA stood at $42.2 million in 1HFY19 up by 26% as compared to $33.6 million in 1H18, with a 4.6% increase in the EBITDA margin on the prior corresponding period.
 

Revenue & EBITDA Growth 1HFY19 (Source: Company Reports)
 
 
Revenue & EBITDA Guidance: Based on the performance of the first half of 2019, the company expects its revenue to be in the range of $180 million to $184 million, the underlying EBITDA to be in the range of $83 million to $87 million and the capital expenditure to be between $430 million and $470 million. The guidance includes strong revenue growth, substantial operating leverage, customer-driven investments, and benchmark operational excellence. Orders more than 14MW of capacity was received by NXT at its S2 data center site from where the revenue recognition will take place in 2H19, with the full run rate impact expected to be recognized in FY22 and beyond.
 
The stock experienced a short interest of ~15.02% (as per the ASIC report of 30 April 2019). The stockgained 5.10% on YTD basis. Moreover, the company is expected to drive higher margins and customer retention going forward, along with expected lower interest and distribution income in the second half of 2019 driven by the property acquisitions. Based on robust financial performance including revenue, EBITDA and other strong fundamentals,we give a “Buy” recommendation on the stock at CMP of $6.310 (down 0.316% as on 06 May 2019).


Comparative Price Chart (Source: Thomson Reuters)  
 

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