Stocks’ Details

Syrah Resources Limited

Graphite Production Growth at 45%: Syrah Resources Limited (ASX: SYR), an Australian-based industrial minerals and technology company, owns and develops the Balama Graphite Project (Balama). SYR as on 29 April 2019, announced Quarterly Activity Report for March quarter. Production of natural flake graphite at Balama came in at 48kt in 1Q 2019, up 45% as compared to 4Q 2018 suggesting an improvement in production consistency. SYR sold and shipped 48kt natural graphite in 1Q FY19 with weighted average graphite price achieved at US$469 per tonne (CIF).


Quarterly Activity in 1Q 2019 (Source: Company reports)
 
Financial Performance in FY18: Revenue from continuing operations for FY18 stood at $1.2 million lower as compared to $1.3 million in FY17. Losses incurred by SYR for FY18 at came in at $28.97 million against $12.31 million in FY17. Operations from Balama Graphite recorded net loss before tax of $20.6 million against net profit before tax of $0.9 million in FY17. This loss was mainly on account of $7.4 million write-off of certain mining assets and $7.2 million share-based payment expense.

As per the 1Q FY19 activity report, cash on the balance sheet as on March 2019 stood at US$62.4 million with net cash outflow at US$14.7 million, lower against planned of US$20 million on account of timing difference of working capital movements. The company also updated that it is evaluating options for debt funding.

Management’s Guidance: Management targets natural graphite production for Q2 2019 at 50kt-55kt with FY19 guidance at 250kt. C1 cash operating costs trending towards US$400 tonne in FY19 via production volumes and structural cost management. Cash balance at the end of Q2 2019 is expected at ~US$43 million.

Stock Recommendation: From the valuation perspective, the stock is trading at price to book multiple of 0.7x which is lower as compared to 1.4x of industry median suggesting its undervalued position. Looking at the historical price movement, the stock has given a negative return of ~62.54% in last 1-year whereas gained ~11% in last 1-month. The stock experienced a short interest of more than 17.04% (as per the ASIC report of 18 April 2019). Considering the above-mentioned factors, we maintain our “Speculative Buy” recommendation on the stock at the current market price of $1.125 per share (down 5.858% on 29 April 2019).
 

NEXTDC Ltd

Property Acquisitions To Result In Cost Efficiency: NEXTDC Ltd (ASX: NXT) announced that one of its substantial holder, Challenger Limited, has increased its voting power to 7.42% from earlier 6.36%.

Financial Performance in 1H FY19: NEXTDC derived revenue from white space (including power recharge), rack ready services, establishment service fees and add-on services with growth in total revenue at 17% to $90.8 million in 1H FY19. NEXTDC increased its contracted utilisation by 10.1MW from 40.2MW at the end of June 2018 to 50.4MW in 1H FY19. Underlying EBITDA at $42.2 million witnesses a growth of 26% in 1H FY19 with a statutory net loss after tax at $3.1 million from a profit of $8.4 million in 1H FY18.

 

Operating and Financing Review (Source: Company Reports)

Recent Acquisitions: NEXTDC completed the takeover of APDC (Asia Pacific Data Centre Group) reflecting an underlying valuation of $261 million in November 2018. The company also acquired B1 data centre property for a value of $24 million. The acquisitions (resulting in ~ $15 million of annualised rent savings) are in-line with NEXTDC’s long term strategy to own the properties for its data centre operations.

Management’s Guidance: The property acquisitions are likely to result in lower interest and distribution income in 2H19. However, no impact on underlying EBITDA is expected. The management expects revenue in the range of $180 million-$184 million, mildly changed from the previous range of $183 million-$188 million. Target for Underlying EBITDA is unchanged at $83 million-$87 million. The Capex for FY 19 is set at $430-470 million.

Stock Recommendation: At the current market price of $6.420, the stock is attractively trading at price to book multiple of 2.5x which lower than industry median of 3.1x. The company enjoys higher EBITDA margins at 53.8% in 1H FY19 as compared to 27.4% of the industry median. The stock experienced a short interest of ~15.19% (as per the ASIC report of 18 April 2019). Looking at the price performance, the stock has given a negative return of 3.16% in the last one year and gained 2.71% in last 1-month. Based on the above-mentioned factors, we find the stock undervalued, hence, give a “Buy” recommendation on the stock at the current market price of $6.420 per share (down 0.311% on 29 April 2019).
 

Nufarm Limited

Mixed Performance from Business Segments In 1H FY 2019: Nufarm Limited (ASX: NUF) recently updated about the change in the substantial holding of Ellerston Capital Limited with voting power going up to 13.89% from earlier 12.61%.

Financial Performance in 1H FY19: NUF recorded underlying EBITDA at $120.9 million, down 2% (pcp) with a statutory net loss of $13.6 million in 1H FY19 against a net profit of $12 million in 1H FY18. EBITDA number was largely backed by strong performance in the North American, Latin American and Seed Technology businesses which offset the challenges in the form of weaker performance in Australia and Europe.


Key Highlights for 1H FY19 (Source: Company Reports)

The net debt at January 31 rose to $1,577 million from $981 million at HY18. The prior year net debt excludes the equity proceeds which are related to acquisition funding.

Management’s Guidance: EBITDA for FY19 is expected to be at $440 million- $470 million on account of dry weather in Australia. Net interest expense is expected at ~ $105 million, with the guidance for foreign exchange impact at $15-$20 million, assuming a hedging cost of $1-$1.5 million per month for Latin America in the second half of FY19. Management will maintain focus on the balance sheet with the target of net working capital balance at 31 July 2019 to be in the range of $1.3 billion to $1.4 billion as compared to $1.325 billion at July 2018.

Stock Recommendation: The stock experienced a short interest of ~13.72% (as per the ASIC report of 18 April 2019). Looking at the historical price movement, the stock has given a negative return of 39.92% in last one year whereas it has appreciated 16.05% in last one month. Considering the fundamentals of the company, sharp run-up seen in the last month, etc, we give a “Hold” recommendation on the stock at the current market price of $5.320 per share (down 0.561% on 29 April 2019).
 

Bellamy’s Australia Limited

Decent Outlook: Bellamy’s Australia Limited (ASX: BAL), in its latest release, updated about the approval of a new Bellamy’s branded formulation-series to be produced at the ViPlus Dairy (ViPlus) facility. Final certification of all changes from SAMR is awaited that is to be received shortly.

Financial Performance in 1H FY19: The group revenue at $129.6 million (down 25.9%) and normalised EBITDA at $26.0 million as compared to $34.9 million in 1H FY18 have been impacted by number of factors.


Normalised Financial Performance in 1H FY19 (Source: Company Reports)

Management’s Guidance: The Board expects revenue for FY19 in the range of $275-300 million. The company is expected to post EBITDA margin in the range of 18-22% in FY 2019. The business is retaining high confidence in rebrand, in new product pipeline, continued food growth as well as successful SAMR registration.

Stock Recommendation: Looking at the historical price movement, the stock has given negative return of 40.88% in last 1-year but moved up sharply in last 3-months with a gain of 43.66% reflecting that good return in the same period. However, the stock experienced a short interest of ~10.18% (as per the ASIC report of 18 April 2019). Considering the above-mentioned factors and current trading level, we give a “Speculative Buy” recommendation on the stock at the current market price of $11.150 per share (up 1.456% on 29 April 2019).


Comparative Price Chart (Source: Thomson Reuters)  
 

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