Stocks’ Details
 

Galaxy Resources Limited

Cash Balance for Sep. Qtr Stood at US$169 Mn:Galaxy Resources Limited (ASX: GXY) is involved in lithium production, minerals exploration and brine assets in Canada, Australia, and Argentina. Recently, GXY reduced its substantial holding in Lepidico Ltd from 9.35% to 8.095%, effective from December 23, 2019. On December 13, 2019, S&P Dow Jones Indices announced about the separation of GXY from S&P/ASX 200 index and the S&P/ASX All Australian 200 index.

September’19 Quarter Key Highlights: Production volume of lithium concentrate at Mt Cattlin came in at 50,014 dry metric tonnes, grading 6.0% Li₂O. This figure was within the production guidance range of 45,000 – 55,000 dmt. Production unit cash cost stood at US$387 / dmt free-on-board at Mt Cattlin. The total shipment volume of lithium concentrate came in at 58,278 dmt. The figure was marginally below the guided range of 60,000 – 70,000 dmt. The company exited the quarter with a cash and debt balance of US$169 million and US$32 million, respectively.


Data on Mining Volumes & Grade of Ore Mined (Source: Company Reports)

What to expect:Production for FY19 is expected to be in the range of 183,000 – 193,000 dmt. Shipment volumes for the coming quarter are expected to be between 30,000 – 40,000 dmt. In the coming quarter, lithium concentrate production volume is expected to be in the range of 35,000 – 45,000 dmt.

Valuation Methodology: EV to Sales Multiple Approach

EV/Sales Based Approach (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months, *1 US$ = 1.45 A$ 

Stock Recommendation: GXY’s stock posted a negative YTD return of 59.59% and is currently trading below the average of its 52-week high and low of $2.415 and $0.815, respectively. Company’s September quarter result, FY19 production guidance, recent repayment of its outstanding Alita senior secured loan facility, etc. are expected to help the company to establish a strong capital structure and credit profile to support growth prospects. We have valued the stock using a relative valuation method, i.e., EV/Sales multiple approach and arrived at a double-digit growth (in % terms). The stock experienced a short interest of ~17.44% (as per the ASIC report of 18 December 2019. Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.865, down 2.26% on 24^th December 2019.
 

Syrah Resources Limited

Graphite Production for Sep Qtr Flat as compared to June Qtr:Syrah Resources Limited (ASX: SYR) operates in mining, exploration and distribution of graphite and related products. Recently, Credit Suisse Holdings (Australia) Limited reduced its substantial holding in the company from 6.62% to 5.05%, effective from December 13, 2019.

September’19 Quarter (Q3FY19) Key Highlights: The quarter reportedgraphite production of 45kt, up from 44kt in the previous quarter. On YTD basis, total production stands at 137kt with ~50% of capacity utilization. During Q3FY19, the company improved recovery to 69% as compared to 66% in Q2FY19, aided by continued elimination of recovery constraints and a proven increase in process control and operational stability. During September 2019, the company reported 71% recovery, aided by increased production ratio of coarse flake graphite to 16% as compared to 12% in the previous quarter.

Net cash outflow from operating activities for the period was reported at $9,329,000. Net cash outflow from investing activities for the period was reported at $10,188,000. Net cash inflow from financing activities for the period was reported at $20,643,000. Cash and cash equivalents at the end of the period stood at $65,499,000.


September’19 Quarter Operating Cashflow Statement (Source: Company Reports)

What to expect: For FY20, the company is expected to focus on its customers and partnership opportunities. It is estimating FY20 production to be within 120kt to 150kt, subject to market conditions. The company is likely to ensure its production of final anode active material and delivery to customer qualification.  For the December’19 Quarter, the company is expected to focus on optimisation of purified spherical graphite samples for potential customers and ongoing battery supply chain engagement.

Valuation Methodology: EV to Sales Multiple Approach

EV/Sales Based Approach (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months, *1 US$ = 1.45 A$ 

Stock Recommendation: The stock of SYR is trading close to its 52-week low level of $0.350. It posted a negative one-year return of 69.23%. However, considering the company’s emphasis on customer engagement, while continuing to deliver valuable input into product specifications and product development opportunities, we have valued the stock using a relative valuation method, i.e., enterprise value to sales (EV/Sales) multiple and arrived at a target price of lower double-digit upside (in percentage terms). The stock experienced a short interest of ~16.88% (as per the ASIC report of 18 December 2019). Hence, we recommend a ‘Speculative Buy’ on the stock at the current market price of $0.420, up 1.205% on 24^th December 2019.

Speedcast International Limited

Top-Line for H1FY19 Improved by 17.3% (Y-o-Y):Speedcast International Limited (ASX: SDA) is a global remote communications supplier. It provides satellite services, including network service, value-added services, equipment sales and wholesale Voice over Internet Protocol (VoIP) to enterprise customers and government. Recently, D8 Investments Ltd became a substantial holder of the company with a stake of 6.2534%, effective from December 20, 2019. On the same day, Norges Bank ceased to be a substantial holder in the company. In another update, S&P Dow Jones Indices announced separation of SDA from S&P/ASX 200 Index and S&P/ASX All Australian 200 Index, effective from December 23, 2019.

H1FY19 Key Highlights for the period ended June 30, 2019: Group revenue for the period was reported at US$357.6 million, up 17.3% year over year. Underlying EBITDA, excluding AASB 16 impact, came in at US$62.2 million, up 3% on yoy basis. Underlying net losses during the period stood at US$5.6 million. Underlying NPATA for the period stood at US$14.7 million, as compared to US$21.1 million in the previous corresponding period. Net debt for the period increased to US$625 million, as compared to US$586 million in the previous half-year. Cash and Cash equivalents at the end of the period came in at US$54.6 million.


H1FY19 Key Metrics (Source: Company Reports)

What to expect:As per the release, the company has reaffirmed its FY19 guidance, where EBITDA has been anticipated in the range of US$150 million to US$160 million, including US$10 million of Leasing reclassification benefit. Additionally, moderate organic growth has been anticipated for the second half of FY19. Globecomm underlying EBITDA has been anticipated to be ~US$21 million. Cost savings in the second half has been anticipated to be US$10 million. Capital expenditure for FY19 has been anticipated to be ~US$50 million, with no dividend for the second half.

Stock Recommendation: SDA’s stock posted a negative three months return of 35.90% and is currently trading close to its 52-week low level of A$0.682. The stock experienced a short interest of ~13.73% (as per the ASIC report of 18 December 2019). Considering the company’s focus on reducing overall costs by the end of the year, cost and revenue synergy expectation from Globecomm’s integration in 2020, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.840 per share, up 12% on 24 December 2019.

Inghams Group Limited

Core Poultry Volumes for FY19 Improved by 4.3%:Inghams Group Limited (ASX: ING) is involved in the production and sale of chicken and turkey products across its vertically integrated primary, free range, value enhanced, further processed and ingredient categories. Recently, company’s director James Bruce Leighton, acquired 93,721 Ordinary Shares to be held in escrow until 15 December 2022, taking the final holdings to 93,721 Ordinary Shares and 556,777 Performance Rights, effective from December 16, 2019. In another update, Legg Mason Asset Management Limited, became a substantial holder in the company with stake of 5.23%, effective from December 12, 2019.

FY19 Key Highlights for the period ended June 29, 2019: Core poultry volumes for the period increased by 4.3% to 414.9kt. Underlying Gross Profit increased by 3.0% to $480.2 Mn. Underlying EBITDA for the period increased by 2.9% to $208.6 Mn. NPAT increased by 10.1% to $126.2 Mn. Net Cash provided by operating activities excluding interest and tax, for the period was reported at $221.5 Mn. Net debt at the end of the period was reported at $263.8 Mn. The Board of Directors declared fully franked final dividend of 10.5 cents per share, with record date and payment date on September 18, 2019 and October 9, 2019, respectively.


FY19 Key Metrics (Source: Company Reports)

What to expect: Going forward, poultry demand will continue to grow as consumers are attracted by the relative affordability of chicken as a healthy protein. Moreover, New Zealand performance is returning to year-on-year growth and remains well below historical profit levels. Therefore, EBITDA in FY2020 has been anticipated below underlying FY2019 with a return to growth expected in FY2021. Company is expected to maintain payout ratio of 60-70% of underlying NPAT for FY20.

Stock Recommendation: Its ROE for FY19 stood at 59.3%, better than the industry median of 12.9%. Its EV/Sales and EV/EBITDA multiples on TTM basis stands at 0.6x and 7.2x, lower than the industry median of 1.8x and 9.0x, respectively, indicating an undervalued position at the current juncture. Stock experienced a short interest of ~12.75% (as per the ASIC report of 18 December 2019). Considering the company’s investments in the new technology to enhance supply chain in order to maximise genetic potential, improve growth and feed conversion rate (FCR) and poultry outlook,  we recommend a “Hold” rating on the stock at the current market price of $3.430, up 0.292% on December 24, 2019.

 
Comparative Daily Technical Chart (Source: Thomson Reuters)

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