Stocks’ Details

Perenti Global Limited

Increase in Work in Hand with a New Contract: Perenti Global Limited (ASX: PRN) is engaged in a global mining services company based in Australia. The company primarily engaged in the business of surface mining, underground mining, and mining support services. The company has announced on 12 April 2020 regarding obtaining a new two-year contract. PRN’s subsidiary African Underground Mining Services (AUMS) will continue to operate at AngloGold Ashanti’s Geita Mine in Tanjania under a two-year contract. The contract will enhance the value of work in hand for PRN by circa A$235mn (Share of PRN in its subsidiary). PRN will be transferring its 20% rights in AUMS to BG Umoja Services Ltd, which will provide mining support services to Geita mine.

Work in Hand 30 June 2020 to 31 December 2020 (Source: Company Reports) 

Generating Cash Through Sale of Assets: The company has reported on 9 April 2021 regarding the sale of its assets Yanfolila mine in Mali and the Boungou contract in Burkina Faso. The sale is likely to generate cash amounting to $80-$90 mn in 2HFY21. The company has already received circa $55mn with the sale of Yanfolila and $25mn from the sale of Boungou Mine. The payment for the remaining inventory and other working capital balances likely to be completed over the next few months. 

1HFY21 Financial Highlights: The company has registered an increase in its revenues to $1,056.18mn in 1HFY21 as compared with $1,006.87mn in 1HFY20 on the back of growth in Underground Business. The company has posted a net loss of $63.79mn in 1HFY21 due to higher expenses and an effective tax rate of 30%. The company has posted a decline in its cash and cash equivalents position to $219.53mn as on 31 December 2020 as compared with $327.49mn as on 30 June 2020. 

Key Risks: The company is engaged in the exploration of Oil & Gas activities. The company is exposed to foreign exchange price movements, any severe movement in foreign exchange prices may lead the company to face financial losses. The company requires regulatory approvals to carry out its business efficiently, any delay in regulatory approvals may lead to financial losses for the company.

Outlook: The company is expecting to register a secured revenue of $1.9bn in FY21 with a committed revenue of $0.9bn in 2HFY21. As per the company reports, PRN is in a strong position to face challenges from COVID-19 situation, backed by strong growth from North American region and a $2.1bn order pipeline. 

Valuation Methodology: Price/Earnings Per Share based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: In the last one month, PRN has increased by ~1.42% and decreased by ~21.61% in the last three months. The current market capitalisation of PRN stands at ~$757.11mn as of 20 April 2021. The stock is currently trading below the average 52-week price level range of ~$0.665-~$1.600. On the technical analysis front, the stock has a support level of ~$1.04 and a resistance of ~$1.12. We have valued the stock using a Price/Earnings Per Share multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering the company has posted an increase in its revenues, significant decline in income tax expenses and decline in current liabilities. For this purpose, we have taken peers Macmahon Holdings Ltd (ASX: MAH), MACA Ltd (ASX: MLD), NRW Holdings Ltd (ASX: NRH). Considering the company has a strong order pipeline from the North American region, increase in work in hand through the extension of contracts, rise in top-line, valuation, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $1.070, down by ~0.466% as on 20 April 2021.

Karoon Energy Ltd

Latest Contract Update: Karoon Energy Ltd (ASX: KAR) is engaged in oil and gas exploration activities. The company has invested in hydrocarbon exploration and evaluation in Australia, Brazil and Peru. The company has announced on 20 April 2021 regarding winning a contract for the Maersk Developer Rig. The rig is in the Caribbean currently and will be mobilised to Bauna in Brazil by the first half of 2022 for the development of Bauna project. The company has an option to retain the rig for the development at Patola field, which is adjacent to Bauna project. The firm value of the contract which also includes modification and mobilisation fees stands at ~US$34mn.

1HFY21 Financial Highlights: The company has registered a net loss of $2.39mn in 1HFY21, mainly on the back of higher operational cost related to Bauna project. Moreover, foreign currency loss and higher finance cost have also contributed towards the net loss for KAR in 1HFY21. The company has reported a decline in cash and cash equivalents position to $132.91mn as on 31 December 2020 as compared with $431.90mn as on 30 June 2020.

Revenue and Cash Highlight (Source: Company Reports)

Key Risks: The company is engaged in the exploration of Oil & Gas activities. The company is exposed to adverse climate risks which can lead the company to face discontinuation of the business for an indefinite time and may also incur financial losses. The company requires regulatory approvals to carry out its business efficiently. Thus, any delay in regulatory approvals may lead to financial losses for the company.

Outlook: As per the company’s guidance, KAR is likely to see a production in a range of 3.0-3.4mmbbls in FY21. Unit Production Costs to remain in a range of US$23-27/bbl and other operating costs to be in a range of A$14-16mn during the same period. KAR is likely to see an investment expenditure for Intervention and Patola projects to be in a range of US$34-38mn in FY21 and for exploration and evaluation to be in a range of US$7-8mn during the same period. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: In the last one month, KAR has increased by ~12.14% and by ~9.09% in the last three months. The current market capitalisation of KAR stands at ~$653.30mn as of 20 April 2021. The stock is currently trading above the average 52-week price level range of ~$0.460-~$1.227. On the technical analysis front, the stock has a support level of ~$1.19 and a resistance of ~$1.23. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering the company has posted revenues from its recent acquisition of Bauna and higher investments for the development of its existing projects. For this purpose, we have taken peers Cooper Energy Ltd (ASX: COE), Beach Energy Ltd (ASX: BPT), Santos Ltd (ASX: STO). Considering a new contract for the development of Bauna project, positive outlook, valuation, generating revenues in 1HFY21 and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $1.20, up by 1.694% as on 20 April 2021.

Resolute Mining Limited

Update on Sale of Bibiani Gold Mine: Resolute Mining Limited (ASX: RSG) is engaged in exploring, developing, and operating gold mines in Australia and Africa. It operates through two segments: Syama and Bibiani. The company has announced on 20 April 2021, regarding the sale agreement of Bibiani Gold Mine project with Chifeng Jilong Gold Mining Co Ltd (Chifeng). RSG has received a notice from Chifeng for the termination of sale agreement of Bibliani Gold Mine. The initial agreement took place in December 2020 where Chifeng has paid US$5mn to RSG towards the initial payment for the agreement. On 24 March 2021, as per Ghanaian Minerals Commission, the mining lease of Bibliani Gold Mine stood terminated but later on 14 April 2021, RSG has notified that the Bibliani Gold Mine was restored. Chifeng has advised RSG to terminate the agreement on the grounds that the legality of mining has been materially impacted after it was terminated earlier from the mineral commission of Ghana. Chifeng has notified RSG to refund US$5million with any accrued interest within the 5 days from the termination of the agreement.

FY20 Financial Highlights: The company has registered an increase in its revenues from continuing operations to US$602.98mn in FY20 as compared with US$456.40mn in FY19. The company has posted a loss from continuing operations of US$36.48mn in FY20, on the back of higher depreciation and other operating costs. The company has reported an increase in its cash position to US$88.59mn as on 31 December 2020 as compared with US$87.30mn as on 31 December 2019.

Cash Position (Source: Company Reports)

Key Risks: The company is engaged in the exploration of gold, so any severe movement in gold prices may lead the company to face financial losses. The company requires regulatory approvals to carry out its business efficiently. Thus, any delay in regulatory approvals may lead to financial losses for the company.

Outlook: The company is expecting to register a gold production in a range of 350,000oz to 375,000oz in FY21. The Syama Sulphide project is expected to produce in a range of 155,000oz-170,000oz. The Syama Oxide project expects production in a range of 80,000oz-85,000oz and Mako project expects production in a range of 115,000oz-120,000oz in 2021. The company is forecasting All-in Sustaining Cost (AISC) to be between $1,200/oz and $1,275/oz. The company expects its non-sustaining capital expenditure at US$29mn and exploration investments are expected at US$17mn in 2021. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, RSG has decreased by ~18.11% and by ~25.17% in the last three months. The current market capitalisation of RSG stands at ~$590.58mn as of 20 April 2021. The stock is currently trading below the average 52-week price level range of ~$0.415-~$1.497. On the technical analysis front, the stock has a support level of ~$0.488 and a resistance of ~$0.562. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering the company has posted a loss in FY20, increase in expenditure and termination of Bibiani Gold Mine Project agreement. For this purpose, we have taken peers Aeris Resources Ltd (ASX: AIS), Sandfire Resources Ltd (ASX: SFR), St Barbara Ltd (ASX: SBM). Considering an increase in revenues, increase in cash position, higher investments for the development of exploration projects, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $0.52, down by 2.804% as on 20 April 2021.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters) 

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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