Stocks’ Details
 

Galaxy Resources Limited

Lithium Production Volume Near the Upper End of Guidance Range:  Galaxy Resources Limited (ASX: GXY) is involved in the production and manufacturing of lithium, exploration of minerals and brine assets in Argentina, Australia and Canada.
 
FY19 Highlights for the Period Ended 31 December 2019: For FY19, the company reported lithium concentrate production volume of 191,570dry metric tonnes (dmt), with grading 5.93% Li2O. This stood at the upper end of the production guidance range of 183,000-193,000 dmt. For the period, total sales volume stood at 132,687dmt, down 17% year over year. Total revenues for FY19 stood at US$69.5 million, down 55 % year over year. EBITDA for the period came in at US$6.8 million (excluding POSCO transaction), down ~88% year over year.
 

Production & Operation Highlights (Source: Company Reports)
 
Outlook: For FY20, the company is anticipating lithium concentrate production volume in the range of 90,000 – 105,000dmt, with grading 6.0% Li2O.  Ore processed production for FY20 is expected to be in the range of 900,000 – 1,000,000 wmt, with grading in the range of 1.1% – 1.2% Li2O. For Mt Cattlin, the company is likely to implement a lower activity mine plan focused on reducing volumes and costs to maintain encouraging cash margins and preserving resource life.
 
Stock Recommendation: The stock posted a positive return of ~3% on a year-to-date basis and is currently trading below the average of its 52-week high and low of $2.300 and $0.815, respectively. On the valuation front, the stock is trading at a price to book multiple of 0.8x as compared to the industry average of 1.6x on TTM (Trailing Twelve Months) basis.The stock experienced a short interest of ~19.87% (as per the ASIC report of 17 February 2020). Considering the corporate strategy for 2020, current trading levels and other factors, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.09, up 5.314% on 21 February 2020.

Syrah Resources Limited

 
Quarterly Highlights for the Period Ended 31 December 2019: Syrah Resources Limited (ASX: SYR) is engaged in the mining & processing of natural graphite. The company’s total Recordable Injury Frequency Rate (TRIFR) for the quarter came in at 0.6. Graphite production for the period was reported at 15kt, down from 45kt in the previous quarter, on the back of material reduction in prices discovered in Q3FY19. The company sold 17kt of graphite at a weighted average graphite price of US$458 per tonne (CIF) for December quarter. 
 

December quarter Highlights (Source: Company Reports)
 
Cash Flow Details: Net cash outflow from operating activities was reported at US$16.601 million. Net cash outflow from investing activities for the period was reported at US$7.604 million. Net cash inflow from financing activities for the period was reported at US$38.913 million. The company exited the quarter with cash and cash equivalents of US$80.583 million.
 

Cash Flow Estimate (Source: Company Reports)
 
What to Expect: The company remains positive 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. For the coming quarter, the company expects total cash outflow to be ~US$16 million.
 
Stock Recommendation: As per ASX, the stock of SYR gave a return of 19% in the past three months. As on 21 February 2020, the market capitalisation of the company stood at ~$206.84 million. The stock is also trading below the average of its 52-week high-low range and offers a good opportunity for accumulation. On the valuation front, the stock is trading at a price to book multiple of 0.4x as compared to the industry average of 1.6x on TTM (Trailing Twelve Months) basis.The stock experienced a short interest of ~17.05% (as per the ASIC report of 17 February 2020). Considering the returns on stock and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.52, up by 4% on 21 February 2020. 
 
 

Inghams Group Limited

 
Core Poultry Volume up ~4% Year Over Year in 1HFY20: Inghams Group Limited (ASX: ING) is involved in the sale & manufacturing of chicken and turkey products. Recently, the company announced a dividend of $0.07300000per share with an ex-date of March 13, 2020 and payment date of April 9, 2020.
 
1HFY20 Highlights for the Period Ended 28 December 2019: The company’s core poultry volume for the period increased by 4.1% and came in at 216kt, due to robust consumer demand and business performance by key customers across key sales channels. Underlying EBITDA (pre AASB16) for 1HFY20 declined 16.3% and came in at $91.7 million. Underlying NPAT (pre AASB16) for the period stood at $42 million, down 24.2%. The company declared a fully franked interim dividend of 7.3 cents per share.
 
1HFY20 Financial Highlights (Source: Company Reports)
 
Outlook: The company expects demand for poultry to rise as consumers are attracted by the cost-effective chicken as a healthy protein source. The company also reported that performance in New Zealand remains on track amid impact of IBDV. Going forward, dividend policy of the company remains unchanged at 60-70% of underlying profit pre AASB16.
 
Valuation Methodology:P/CF Based Valuation

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All the forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock posted a positive return of ~13% in the past three months and is currently trading close to the average of its 52-week high and low of $4.690 and $2.890, respectively. Its ROE for FY19 stood at 59.3%, better than the industry median of 12.9%. Considering the performance in 1HFY20, decent outlook and current trading levels, we have valued the stock using P/CF based relative valuation method and for the purpose, we have taken the peer group - Coca-Cola Amatil Ltd (ASX: CCL), Treasury Wine Estates Ltd (ASX: TWE) and Myer Holdings Ltd (ASX: MYR). Therefore, we have arrived at a target price of higher single-digit growth (in % terms). The stock experienced a short interest of ~13.76% (as per the ASIC report of 17 February 2020).  Hence, we recommend a “Hold” rating on the stock at the current market price of $3.48, down 4.396% as on 21 February 2020.
 

Orocobre Limited

 
Ore Inks a Deal to Acquire 100% Stake of Advantage Lithium: Orocobre Limited (ASX: ORE) is involved in the production and exploration of mineral with an increased focus on improving Lithium resources in Argentina. Recently, the company announced that it has inked a definitive agreement with Advantage Lithium Corp. to acquire latter’s 100% of the issued and outstanding shares for 0.142 shares of Orocobre per Advantage share. 
 
1HFY20 Highlights for the Period Ended 31 December 2019: The company recently reported total production of 6,679 tonnes for 1HFY20, up ~10% on a year over year basis. In addition, Olaroz Lithium Facility sales volume stood at 6,395 tonnes of lithium carbonate, up 24% year over year. Total revenue for the period stood at ~US$48.9 million as compared to ~US$9.3 million reported in the year-ago period. The company reported statutory consolidated group net loss of US$18.9 million in 1HFY20 as compared to a net profit of US$24.1 million reported in the year-ago period. As of 31 December 2019, Orocobre Group had cash of US$195 million.
 

 Operational Highlights (Source: Company Reports)
 
Outlook: For FY20, the company predicts full-year production for Olaroz Lithium Facility to be at least 5% higher as compared to the production of FY19. Production for Borax Argentina is expected to be in the range of 40,000 - 45,000 tonnes for FY20. 
 
Stock Recommendation:The stock of ORE is trading at $3.43 with a market cap of ~$866.93 million. The stock is trending at the upper band of its 52-week trading range of $2.180 to $4.040. The stock has generated stellar returns of ~36% in the last six months. The company continues to focus on reducing the cost of production in order to sustain its position as one of the low-cost producers of lithium chemicals. On the valuation front, the stock is trading at a price to book multiple of 1.0x as compared to the industry average of 1.6x on TTM (Trailing Twelve Months) basis. The stock experienced a short interest of ~13.68% (as per the ASIC report of 17 February 2020). Considering the current price movement and trading levels, and encouraging business prospects, we recommend a ‘Hold’ rating on the stock at the current market price of $3.45, up 4.23% as on 21 February 2020.
 
 
 
Comparative Price Chart (Source: Thomson Reuters)

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