Stocks’ Details

Syrah Resources Limited

Record Production in March: Syrah Resources Limited (ASX: SYR) is primarily engaged in operating the Balama Graphite Project in Mozambique. The company recently updated on the issue of 37,852,622 shares under Retail Entitlement Offer and 31,042,087 shares under Institutional Entitlement Offer, for a consideration of A$0.81 per share.

The company signed a binding agreement with Gredmann (HK) Limited for the supply of fines natural graphite into China. The agreement involves a supply of 9,000 tonnes of graphite per month and is valid till December 2021.

Highlights of March Quarter: During the period, the company reported graphite production of 48kt, that went up by 45% on the December quarter. In addition, the month of March saw a record production of ~19kt. The period saw strong volume demand with sales of 48kt as compared to 37kt in December quarter.


Balama Production Summary (Source: Company Reports)

Q2FY19 Update: In the second quarter, the company expects production to be in the range of 45kt to 50kt. The production guidance was earlier provided to be between 50kt to 55kt, which was reduced due to delay in expected results from the production improvement plan. Shipped sales for the quarter are expected to be around 50kt.

Stock Recommendation: The stock of the company generated negative returns of 10.19% and 14.50% over a period of 1 month and 3 months, respectively. As per the Australian Securities and Investments Commission (ASIC) report, the short position for SYR’s share was reported at ~19.57% as on July 09, 2019. Performance during the first quarter was characterised by a decent rise in production along with strong volume demand, taking the sales up by 30% in comparison to the previous quarter. The company has undertaken a product improvement plan, results pertaining to which are expected to reflect into the third quarter.Hence, considering the above factors and looking at the current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.010, up 6.316% on 15 July 2019.


SYR Daily Chart (Source: Thomson Reuters)
 

Nufarm Limited

Strong 1H Result in Americas: Nufarm Limited (ASX: NUF) manufactures and sells crop protection products and its proprietary seed technologies business. The company recently updated on the appointment of Fiona Smith as the Company Secretary.

Key Highlights of 1HFY19: During the period ended 31 January 2019, the company generated group revenue amounting to $1.58 million, up ~8% on pcp. Underlying EBITDA for the period stood at $120.9 million as compared to $123.2 million in pcp. Underlying net loss after tax stood at $11.5 million as compared to 1HFY18 profit of $10.7 million.


1HFY19 Financial Results (Source: Company Reports)

Outlook: With major crop seasons in Australia, Europe and North America occurring in the second half, the company’s sales and earnings are heavily weighted to 2HFY19. EBITDA for the period is expected to be between $440 million and $470 million. Net Interest expense is expected to be around $105 million and net working capital is forecasted to be between $1.3 billion and $1.4 billion.

Stock Recommendation: The stock of the company generated negative returns of 14.65% and 31.04% over a period of 3 months and 6 months, respectively. During the first half of 2019, the company achieved good revenue and earnings growth in Latin America, North America and Seed Technologies. With a quality product base which is delivering growth and a strong pipeline of new products to be launched in coming years, the growth momentum is likely to be continued, going forward. EBITDA guidance for FY19 is higher than FY18 EBITDA of $390.02 million. Currently, the stock is trading slightly towards a 52-week low level of $3.605. As per ASIC dated July 09, 2019, more than 17.97% of total product in issue has been reported as short positions.Hence, in the view of aforesaid facts and current trading level, we give a “Hold” rating on the stock at a current market price of $4.270, down 0.928% on 15 July 2019.


NUF Daily Chart (Source: Thomson Reuters)
 

Orocobre Limited

Highest March Quarter Production: Orocobre Limited (ASX: ORE) is engaged in the exploration and development of lithium at its flagship Olaroz Lithium Facility and the operation of Borax.

Key Updates of March Quarter: During the quarter, the company reported production of 3,075 tonnes, up 10% on pcp. Revenue for the quarter amounted to US$33.4 million, up 4% QoQ. Cost of sales for the period stood at US$4,193/tonneand gross cash margin stood at US$5,258/tonne. The company’s cash balance as at 31 March 2019 stood at US$265.7 million.             
                                                  

Key Highlights (Source: Company Reports)

Growth Projects: The company has undertaken Stage 2 expansion at Olaroz with US$29 million spent on expansion activities in the first phase. In addition, it has lined up a 10,000 tpa Naraha Lithium Hydroxide Plant to be built in Japan.

Production Guidance: The company expects FY19 production to be the same as FY18 production of 12,470 tonnes.

Stock Recommendation: As per the Australian Securities and Investments Commission (ASIC) report, the short position for ORE’s share was reported at ~15.17% as on July 09, 2019. The company’s stock is trading at the lowest price since March 2017 and went down by 1.095% in today’s trading session. In the past 1 year, the stock has declined at a rate of 50.81% due to excess supply in the Lithium market. The company views current market conditions as a short-term correction that has overshadowed the long-term demand for Lithium in the electric vehicle and energy storage system segments. The company with the consensus of other major producers has forecasted 18% to 20% CAGR between 2018 and 2025. With the growth projects in place, the company seems well positioned to grab the expected rise in demand. Given the performance in the March quarter and the trends in the lithium market, we give a “Buy” rating on the stock at the current market price of $2.710, down 1.095% as on 15 July 2019.


ORE Daily Chart (Source: Thomson Reuters)
 

BWX Limited

Core Brands to Drive Growth: BWX Limited (ASX: BWX) is a developer of branded skin and hair care products. The company recently executed an amendment and extension to its existing debt facility till July 2022. This will provide the company with long term stability and flexibility to pursue its growth opportunities. The new arrangements will reduce the overall cost of finance.

1HFY19 Highlights: During the period, the company generated revenue amounting to $68.1 million, up 1.4% on the prior corresponding period. Underlying EBITDA during the period stood at $7.1 million and NPAT at $2.6 million, reporting a decline of 59.5% and 51.8% on pcp, respectively.


H1FY19 Key Financials (Source: Company Reports)

FY19 Guidance: The company expects FY19 underlying EBITDA to be in the range of $21 million - $23 million from the earlier guidance of $27 million - $29 million.The company’s core brands have the potential to drive returns from the company’s portfolio.It has improved on the domestic performance and expects to see growth in offshore revenues as well.

Stock Recommendation: The stock of the company generated negative returns of 2.30% and 11.67% over a period of 1 month and 3 months, respectively. The company enjoys excellent brand positioning to take advantage of the significant opportunities ahead. The business is focused on growth across the key markets including the US, the UK, Europe, Asia, and the Middle East. Moreover, the company is also expected to improve on net operating cash flows in the coming quarter. As per ASIC dated July 09, 2019, 12.55% of the total product in issue has been reported as short positions. Given the above factors along with the recent debt refinancing and the current trading level, the company seems capable of delivering long term returns. Hence, we give a “Speculative Buy” recommendation on the stock at the current market price of $2.440, up 15.094% on 15 July 2019.


BWX Daily Chart (Source: Thomson Reuters)
 

Domino’s Pizza Enterprises Limited

Online Sales Boosted the Overall Growth: Domino’s Pizza Enterprises Limited (ASX: DMP) is engaged with the operation of retail food outlets and the franchise services.

The company recently updated that it has not been served with the class action court documents as it received an unsealed copy related to this. The documents allege that Domino’s misled the franchisees who, in reliance upon Domino’s representations and conduct, paid their employees in accordance with a number of industrial agreements rather than under the Fast Food Industry Award 2010. The company also confirmed that Commonwealth Bank of Australia and its related bodies corporate have become an initial substantial holder of the group with the voting power of 5%.

The company has recently issued 35,000 fully paid ordinary shares at the issue price of $40.95 and 17650 shares issued under the same terms as existing fully paid ordinary shares on issue, subject to a 24-month escrow period. These 17,650 shares have been issued by the company as a part of the acquisition of franchised stores in France to the value of €500,000.

1H19 Performance Highlights: Global food sales posted a growth of 14.6% to $1.43 billion for the period with EBIT growth of 12.1% to $108.3 million. Europe and Japan accounted for more than 70% of the total revenue and ~$71 million EBITDA contribution. During the period, underlying operating cash flow was up 26.2% with an excellent cash conversion rate and repayment of store loans by franchisees in Japan.


1H19 Results Highlights (Source: Company Reports)

Outlook: As per the first seven trading weeks’ data of the second half, sales was up 4% on a Same Store Sales basis with 13 new organic stores constructed and opened during the period. For FY19, the company expects Same Store Sales to be within the guidance of mid-to-lower end of the +3-6 % range. As a result, EBIT is expected to be at the lower end of guidance of $227 million - $247 million. New store builds are expected to be slightly lower than originally guided range of 200 to 215 organic new stores which are within the store growth outlook of 7% to 9% each year. The Group has upgraded its future store outlook to 4,900 by 2025-2028.

Stock Recommendation: The stock has corrected ~2% on YTD and ~17% in the last 1-year. At the CMP of $40.300, the stock is trading at price to earnings multiple of 29.370x with an annual dividend yield of 2.83%. The stock’s three-month return stood at -8.87% while, in the span of the previous one month, the return was 0.48% which reflects that the stock is quite volatile. As per the Australian Securities and Investments Commission (ASIC) report, the short position for DMP’s share was reported at ~10.91% as on July 09, 2019. Hence, considering the aforesaid facts and volatility in the stock, we put our wait and watch stance on the stock at the current market price of A$40.300 per share (up 1.409% on July 15, 2019).


 DMP Daily Chart (Source: Thomson Reuters)

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