Stocks’ Details
 

New Hope Corporation Limited

Update on Colton Project: New Hope Corporation Limited (ASX: NHC) is an Australian controlled energy company with interests and operations spanning coal mining exploration, port operation, innovative technologies and investment. As on 29 January 2020, the market capitalization of the company stood at $1.58 billion. The company has recently announced that it has been served with application by Wiggins Island Coal Export Terminal Pty Ltd and by NEC and by Colton Coal Pty Ltd which seek to appeal that the company has not guaranteed the debts of Northern Energy Corporation Limited and Colton Coal Pty Ltd.

Substantial Rise in Saleable Production: For the quarter ended 31 October 2019, total saleable coal production went up by 66% to 3.32 mt and total coal sales were 62% higher than the pcp and stood at 3.34 mt. This was mainly due to the increased ownership in the Bengalla mine.


Quarterly Production and Sales (Source: Company Reports)

What to Expect: The company is well positioned to meet the growing energy demands of its Asian customers. It is focusing on increasing the production levels and improve the safety performance. The company is also engaged on developing Lenton Joint venture Burton Mine and is aiming to obtain the approvals for the New Acland stage 3 project in order to meet the future demand. NHC is targeting to implement efficiency initiatives at Bengalla and evaluate incremental expansion opportunities.

Valuation Methodology: EV/EBITDA Valuation Approach

EV/EBITDA Valuation Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: As per ASX, the stock is trading very close to its 52-weeks low level of $1.877, proffering a decent opportunity for accumulation. Over the span of 4 years, the company witnessed a CAGR of 26.77% in revenue and a CAGR of 27.04% in gross profit. During FY19, EBITDA margin of the company stood at 39.6%, higher than the industry median of 32.2%. Considering the trading levels, CAGR in revenue and high EBITDA margin, we have valued the stock using EV/EBITDA valuation approach and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Whitehaven Coal Ltd (ASX: WHC), Coronado Global Resources Inc (ASX: CRN), BHP Group Ltd (ASX: BHP) etc. as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $1.880, down by 1.312% on 29 January 2020.

Syrah Resources Limited

On Track for Cost Reduction: Syrah Resources Limited (ASX: SYR) is engaged in mining and processing of natural graphite. As on 29 January 2020, the market capitalization of the company stood at $215.11 million. The company in its recent quarterly report stated that it is on track to achieve the cost reduction target of 20-25% at the production rate of 15kt per month. During Q4 2019, the company sold and shipped 17kt of graphite at an average selling price of US$458/t. In the same time span, cash balance stood at US$81 million. 


Production and Cost Structure (Source: Company Reports)

Growth Opportunities: The company expects that the production at Balama will be moderated through the first quarter of 2020. The plant at Vidalia will be utilized through 2020 for qualification of material in the battery supply chain and for the development of strategic and financial partnerships. The company forecasts that the net cash outflow for Q1 2020 will be approximately US$16 million and the cash balance is expected to be ~US$65 million. 

Stock Recommendation: As per ASX, the stock of SYR gave a return of 35.06% in the past 3 months and a return of 10.64% in the past one month. The stock is also trading very close to its 52-weeks low level of $0.350, which is good opportunity for the investors to enter the market. During FY19, current ratio of the company stood at 5.02x, higher than the industry median of 1.81x. This indicates that the company is liquid enough to pay off its current liabilities using its current assets. In the same time span, the company also reported a stable balance sheet with Debt/Equity ratio of 0.01x, lower than the industry median of 0.13x. Considering the returns, trading levels, high current ratio and decent outlook, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.510, down by 1.923% on 29 January 2020.

Coronado Global Resources Inc.

Update on Quarterly Production and Sales: Coronado Global Resources Inc. (ASX: CRN) is engaged in mining, quarrying, oil and gas extraction. As on 29 January 2020, the market capitalization of the company stood at $1.99 billion. The company in its quarterly report for December stated that ROM production for the quarter was 6.6 mt, down by 12.8% on the previous quarter. This was due to the planned maintenance shutdown at Curragh extending into October. In the same time span, coal sales went down by 5.1% to 4.7 mt due to reduced sales from the US operations as Atlantic basin demand weakened and shipment to China were suspended. On the financial front, mining cost per tonne sold was within the guidance and stood at US$51.8 per tonne, 8.8% lower as compared to FY18. 


Quarterly Production and Sales Performance (Source: Company Reports)

What to Expect from CRN Going Forward: The company has recently provided EBITDA guidance for the year ended 31 December 2019 and expects it to be in the range of $687 million to $737 million. The company also expects to produce 21.2 mt to 21.6 mt at an operating cost ranging between $51/t to $52/t.

Valuation Methodology: EV/EBITDA Valuation Approach

EV/EBITDA Valuation Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months, 1USD=1.48 AUD

Stock Recommendation: As per ASX, the stock of CRN is inclined towards its 52-weeks low levels of $1.9, proffering a decent opportunity for accumulation. For the quarter ended 30 September 2019, gross margin of the company stood at 43.9%, higher than the industry median of 7.5%. In the same time span, EBITDA margin of the company was 28% as compared to the industry median of 3.3%. Considering the trading levels, high gross and EBITDA margin and decent outlook, we have valued the stock using EV/EBITDA valuation approach and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered Fortescue Metals Group Ltd (ASX: FMG) and Mount Gibson Iron Ltd (ASX: MGX) as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $2.12, up by 2.913% on 29 January 2020.
 

Whitehaven Coal Limited

Whitehaven expands interest in Narrabri Mine to 77.5%: Whitehaven Coal Limited (ASX: WHC) is engaged in mining and exploration of coal. As on 29 January 2020, the market capitalization of the company stood at $2.47 billion. The company has recently announced that it has completed the acquisition of EDF Trading Australia Pty Limited, bringing the ownership interest in the mine to 77.5% for a consideration of US$72 million. The company has recently released its quarterly report for December 2019 quarter wherein it stated that ROM Coal production stood at 3.1 mt and the coal sales went down by 17% to 4.5 mt. The company has achieved an average realized price of US$87/t for its metallurgical coal sales. 


Whitehaven Managed Totals (Source: Company Reports)

Future Guidance: The company has recently provided guidance for FY20 and expects ROM coal production to be in the range of 20mt to 22mt with unit cost ranging between A$73/t to A$75/t. The company also expects its managed coal sales to be in between 19mt to 20 mt.

Valuation Methodology: EV/Sales Valuation Approach 

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

Stock Recommendation: As per ASX, the stock of WHC is trading very close to its 52-weeks low level of $2.310, proffering a decent opportunity for accumulation. Over the span of 4 years, the company witnessed a CAGR of 34.36% in revenue and a CAGR of 40.57% in gross profit. During FY19, gross margin of the company stood at 54.6%, higher than the industry median of 44.3%. In the same time span, EBITDA margin of the company was 59.1% as compared to the industry median of 32.2% and ROE was 15.1% relative to the industry median of 13.2%. Considering the trading levels, CAGR in revenue and gross profit, high gross and EBITDA margin and decent outlook, we have valued the stock using EV/Sales valuation and arrived at a target upside of lower-double digit (in percentage terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $2.450, up by 1.66% on 29 January 2020. 

 
Comparative Price Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.