Stocks’ Details
 

Senex Energy Limited

Extension for Acquisition of Cooper Eromanga Licences: Senex Energy Limited (ASX: SXY) is engaged in the production, exploration and development of oil and gas. As on 16 January 2020, the market capitalization of the company stood at $502.34 million. The company recently noted that date for the satisfaction of the conditions with respect to the acquisition of 27 Petroleum Retention Licenses in the Cooper-Eromanga Basins from SXY by Oilex Ltd is extended by two months to 29 February 2019. The company has also announced an expansion of its natural gas sales agreement with Orora Limited and has agreed to supply 13.2 petajoules of natural gas from Project Atlas for a period of 6 years from 2022 to 2027.

Increase in Production and Sales Volumes: The company in its September quarterly report stated that its oil and gas production during the quarter went up by 9% to 337 kboe. This was mainly due to strong oil production from the Growler field and a slight increase in gas production of Surat Basin. In the same time span, sales volume of the company stood at 319 kboe, up by 6% on the prior quarter.


Key Performance Metrics (Source: Company Reports)

What to Expect from SXY: The company believes that it is in a solid position to resist volatility in global and local markets owing to its strategy of building an east coast natural gas business. It is also anticipating the completion of its drilling campaign across both Surat Basin projects. The company will also bring new wells online and will also ramp up production towards its initial target of 18 petajoules a year. 

Valuation Methodology: Price/Book Value Based Valuation Approach

Price/Book Based Multiple 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 gave a return of 1.47% in the past one month. During FY19, gross margin of the company stood at 56.1%, higher than the industry median of 44.3%. This indicates that the company is managing its costs well and is capable of converting its revenue into profits. The company also reported a stable balance with Debt/Equity of 0.12x, lower than the industry median of 0.24x. Considering the returns, higher gross margin and decent outlook, we have valued the stock using Price/Book value based relative valuation approach and arrived at a target upside of higher single-digit (in percentage terms). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.345 on January 16, 2020.

Syrah Resources Limited

First Production of Purified Spherical Graphite: Syrah Resources Limited (ASX: SYR) is engaged in the mining and processing of natural graphite. As on 16 January 2020, the market capitalization of the company stood at $273.02 million. The company has recently announced the first production of purified spherical graphite from its Battery Anode Material plant. The company is leveraging significant Balama asset to develop integrated battery anode material and industrial products business. For the quarter ended 30 September 2019, Balama produced 45kt of graphite and made sales revenue of US$17.6 million.


Balama Production Summary (Source: Company Reports)

Growth Opportunities: The company remains committed to sustain the long-term value proposition of the Balama asset and downstream strategy. Syrah Resources Limited is also taking action to address the current market conditions with significant cost reduction and will continue to review market rebalance and manage production in accordance with market demand. The company will also focus on strengthening balance sheet and achieve positive cash flows. The company gave its production guidance for FY20 and expects it to in between 120kt to 150kt. It is also expecting to spend ~US$13 million in BAM capex, product development, customer engagement and Vidalia operations over a period from Q4 2019 to the end of 2020. 

Stock Recommendation: As per ASX, the stock of SYR gave a return of 32% on YTD basis and a return of 46.67% in the past one month. It is also trading close to its 52-weeks’ low level of $0.350 and offers a good opportunity for accumulation. On the TTM basis, the stock is trading at a Price/Book multiple of 0.5x, lower than the industry median (Basic Materials) of 1.6x. Considering the returns, current trading levels and decent outlook, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.615, down by 6.818% on January 16, 2020. 
 

OceanaGold Corporation

OceanaGold Amends Revolving Credit Facility: OceanaGold Corporation (ASX: OGC) is a multinational gold mining company with assets located in the Philippines, New Zealand and the United States. As on 16 January 2020, the market capitalization of the company stood at $1.74 billion. The company has recently revised its existing $200 million Revolving Credit Facility with its banking partners. The major changes include the elimination of the 2019 amortisation and the extension of facility till December 31, 2021.

For the Q3 2019, gold production of the company stood at 107.5 koz, down by 17% on the second quarter. This was mainly due to the temporary suspension of underground mining at Didipio. The absence of sales at Didipio resulted in AISC (All-in sustaining costs) of $1,122 per oz on sales of 94,347 ounces of gold.


2019 Operations Summary (Source: Company Reports)

What to Expect from OGC: The company expects increased production from Macraes and Haile with continued operational improvements and lower AISC. OGC also anticipates continued advancement of the Martha Underground development and extensive exploration drilling across the operational footprint. The company expects to produce 460,000 to 480,000 ounces of gold along with 10,000 to 11,000 tonnes of copper. It also expects AISC to range between US$1,040 and US$1,090 per ounce sold.

Valuation Methodology: EV/EBITDA Valuation Approach

EV/EBITDA Valuation Approach (Source: Thomson Reuters), *1USD = 1.45 AUD

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

Stock Recommendation: As per ASX, the stock of OGC is inclined towards its 52-weeks’ low level of $2.490. During September 2019, EBITDA margin of the company stood at 26%, higher than the industry median of 3.3%, indicating the good financial health of the company. For the same time period, Debt/Equity of the company was slightly lower than the industry median and stood at 0.13x. Considering the trading levels, higher EBITDA margin and positive outlook, we have valued the stock using EV/EBITDA multiple based relative valuation approach and arrived at a target upside of higher single-digit (in percentage terms). For the said purpose, we have considered Evolution Mining Ltd (ASX: EVN), St Barbara Ltd (ASX: SBM), Regis Resources Ltd (ASX: RRL) and Resolute Mining Ltd (ASX: RSG) as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $2.810, up by 0.717% on January 16, 2020.  
 
 
Comparative Price Chart (Source: Thomson Reuters)

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