Stocks’ Details

Origin Energy Limited

Q1FY21 Operational Update: Origin Energy Limited (ASX: ORG) is involved in the operation of energy businesses including exploration and production of natural gas, electricity generation, wholesale and retail sale of electricity and gas, and sale of liquefied natural gas. The market capitalisation of the company as on 18 December 2020, stood at ~$8.75 billion. During Q1FY21, revenues from the Integrated Gas segment decreased by 39% to $373.9 million, from $610.2 million in the June 2020 ending quarter. Sales volume declined by 4% on the back of lower demand. The average realised price during the quarter was at $6.52/GJ. In the Energy Markets segment, electricity volumes were in line when compared to the same quarter of pcp. There was an increase of 5% in retail volumes during the same period, driven by high residential demand. Gas volumes decreased by 7%, as compared to September 2019 quarter. However, a 5% increase in retail volumes has offset a reduction in business volumes, during the same period.

Q1FY21 Results (Source: Company Reports)

Outlook: The past few months have been challenging for the company owing to lesser demand and a reduction in business volumes. However, the company expects to provide decent performance as the demand picks up. Accordingly, it has upgraded its Integrated Gas guidance for FY2021 to a production of 675-705 PJ. ORG expects FCF yield to be ~12-15% in FY21, which reflects a low cost of operations.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: ORG had reported decent financial performance, despite the challenging business environment owing to COVID-19. It seems to be optimistic about its near-term outlook. The stock of ORG gave a return of 8.17% in the past three months and a return of 2.30% in the past one month. As per ASX, the stock of ORG is trading below its average 52 weeks’ trading range of $3.750-$8.890, proffering a decent opportunity for the investors to enter the stock. On a technical analysis front, the stock of ORG has a support level of $4.002 and a resistance level of $5.377. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as AGL Energy Limited (ASX: AGL), Beach Energy Limited (ASX: BPT), Worley Limited (ASX: WOR), to name a few. Considering the current trading levels, positive near-term outlook, and resilient performance, we recommend a ‘Buy’ rating on the stock at the current market price of $4.90, down by 1.409% as on December 18, 2020.

Resolute Mining Limited

Binding Agreement to Divest Bibiani Gold Mine: Resolute Mining Limited (ASX: RSG) is engaged in gold mining, prospecting, and exploration of minerals. The market capitalisation of the company as on 18 December 2020, stood at ~$921.75 million. As per a recent update, the company has entered into a binding agreement to sell the Bibiani Gold Mine in Ghana to Chifeng Jilong Gold Mining Co. Ltd, for a cash consideration of US$105 million.

September 2020 Quarter Update: During the quarter, operations at Mako and Syama delivered a decent performance. The volume for mined ore decreased by 24% to 1,169,921 t, when compared to June 2020 quarter. Gold sales were down by 18% to 90,900 oz, in the same period. However, there was an increase of 17% in the average realised price to 1,694 US$/oz, in the September 2020 quarter, when compared with June 2020 quarter.

September 2020 Quarter Performance (Source: Company Reports)

Outlook: RSG’s exploration and drilling programs restarted operations at some of its project sites, after it was paused during the June quarter due to COVID-19 outbreak. The company expects production to be at the lower end of the reinstated guidance, for the CY20. The guidance was reinstated between 400,000oz and 430,000 oz, for the full year, reflecting a negative impact on the industrial relations dispute in the September quarter.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company’s Mako gold mine is a high margin asset with decent cash flow generation. The Syama gold mine is also considered to be a long-life asset with sulphide and oxide deposits. The stock of RSG gave a negative return of 17.50% in the past three months and a positive return of 3.12% in the past one month. As per ASX, the stock of RSG is trading below its average 52 weeks’ trading range of $0.605-$1.497, proffering a decent opportunity for the investors to enter the stock. On a technical front, the stock of RSG has a support level of $0.765 and a resistance level of $1.003. We have valued the stock using a P/E multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as St Barbara Limited (ASX: SBM), OceanaGold Corporation (ASX: OGC), Regis Resources Limited (ASX: RRL), to name a few. Considering the current trading levels, business resumption, high margin assets and decent outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $0.825, down by 1.198% as on December 18, 2020.

Red 5 Limited

RED Receives Approval for Construction: Red 5 Limited (ASX: RED) is engaged in gold mining and mineral exploration. The market capitalisation of the company as on 18 December 2020, stood at ~$522.29 million. In a recent update, the company has informed that it has received approval for construction of the process plant in its King of the Hills (KOTH) Gold Project in Western Australia.

FY20 Financial Update: The company reported decent financial performance in FY20. Revenues were at $200.33 million in FY20, as compared to $153.97 million in FY19. Underlying EBITDA increased by 74% to $53.98 million during the same period. Cash and bullion came in at $106.8 million as on 30 September 2020.

FY20 Financial Performance (Source: Company Reports)

Outlook: The company has high-quality mines in the form of KOTH and Darlot. At present, it has one plant in Darlot and aims to add one more plant in its operations by 2022. As per the company, the planned development of KOTH will position RED as a leading mid-tier producer in the future.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: RED had reported decent financial performance in FY20. The stock of RED gave a negative return of 24.99% in the past three months and a negative return of 1.92% in the past one month. As per ASX, the stock of RED is trading slightly below its average 52 weeks’ trading range of $0.175-$0.375, proffering a decent opportunity for the investors to enter the stock. On a technical front, the stock of RED has a support level of $0.23 and a resistance level of $0.31. We have valued the stock using an EV/Sales multiple based illustrative relative valuation and have arrived at a target price with an upside of lower double-digit (in % terms). For the purpose, we have taken peers such as Gold Road Resources Limited (ASX: GOR), Calidus Resources Limited (ASX: CAI), Saracen Mineral Holdings Limited (ASX: SAR), to name a few. Considering the current trading levels, holdings of quality mines and resilient financial performance, along with key associated risk, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.255, down by 3.774% as on December 18, 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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