Stocks’ Details

Altura Mining Limited

Proposal to Refinance Current Loan Note Debt:Altura Mining Limited (ASX: AJM) is engaged in mining, processing and sale of lithium ore at the Altura Lithium Project in the Pilbara region of Western Australia. As on 12^th December 2019, the market capitalisation of the company stood at $138.77 million. The company is discussing to refinance its current loan note debt. It was added that one of the options with respect to proposed refinancing happens to be a potential issue of the senior secured notes, which is subject to the market and other conditions. 

Record Concentrate Production in October: During FY 2019, the company continued to make operational improvements to increase reliability, lift recovery rates, drive up production and reduce unit costs. AJM also achieved consistent sales of high-quality lithium concentrate and has shipped a record cargo of approximately 17,500 wet metric tonnes (wmt) of spodumene concentrate to customers in China.

The company’s Pilgangoora mine and process plant in the Pilbara region of WA is effectively achieving nameplate annual production of approximately 220,000 tonnes of spodumene concentrate. As can be seen in the below image, the company achieved another record month of the lithium concentrate production in October, and the total output stood at 17,951 wet metric tonnes (or wmt).


Spodumene Production (Source: Company Reports)

What to Expect: The company expects that the lithium demand will grow from 220,000 metric tons in 2017 to 1.5 million metric tons in 2028, primarily due to increased battery demand, which will grow at a 28% annual growth rate through 2028.The Group will focus on attaining nameplate production of Stage 1 of the Altura Lithium Project and deliver the Stage 2 expansion as dictated by market conditions.
 
Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Valuation Multiple (Source: Thomson Reuters), *NTM: Next Twelve Months

Note: All forecasted figures and peers have been taken from Thomson Reuters.
 
Stock Recommendation: As per ASX, the stock of AJM is trading very close to its 52-week’s low level of $0.054, proffering a decent opportunity for accumulation. Over the period of FY15 to FY19, revenue of the company went up from $4.77 million in FY15 to $39.57 million in FY19 and witnessed a CAGR of 69.71%. In FY 2019,gross margin and EBITDA margin improved from the previous year and stood at 7.4% and 6.1%, respectively. Thus, considering the trading levels, CAGR in revenue, improving gross and EBITDA margins and decent outlook, we valued the company using relative valuation multiple (EV/Sales valuation multiple) and arrived at a target price which is reflecting an increase of lower double digit (in percentage terms). Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.055, down by 1.786% on December 12, 2019.

Battery Minerals Limited

Management Restructure Expected to Deliver Further Savings: Battery Minerals Limited (ASX: BAT) is a diversified mining development and minerals exploration company dedicated to exploring for and developing mineral deposits in Mozambique. As on 12 December 2019, the market capitalisation of the company stood at $7.91 million. The company has promoted various members as a part of re-structure, which are expected to generate further cost savings while the company advances its funding discussions for its Montepuez graphite project in Mozambique. The company also signed a MoU with Urbix with the aim of establishing a joint venture, which would develop an environmentally friendly graphite purification facility in Mozambique.

Implementation of Cost Reduction Strategy:The company has recently released its quarterly performance report wherein it implemented a cost reduction strategy and aimed at ensuring it remains funded throughout the project financing process. The Montepuez Graphite Project is at an advanced stage of development as it has completed 70% of its detailed engineering along with the completion of plant earthworks and roads. At Stage 1, the project produced over 50,000 tpa with EBITDA of more than US$30 million p.a.


Montepuez Graphite Project (Source: Company Reports)

What to Expect: The company is well positioned to respond to growing diversified graphite market and is planning to finance the Montepuez Graphite Project. BAT’s forward plan also includes progressing work on downstream processing potential. The Company remains confident that future market fundamentals are robust. 

Stock Recommendation: EBITDA margin has shown improvement in 1H FY 2019 on the YoY basis. During the year, current ratio of the company stood at 5.94x, higher than the industry median of 1.82x. This shows that the company is sufficiently liquid and is capable of paying of paying its current liabilities using current assets. Thus, taking on account the decent outlook, high current ratio, improvement in EBITDA margin, and expectation of favourable future market fundamentals, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.006 per share on December 12, 2019.
 

Leigh Creek Energy Limited

Milestone Achieved Towards Commercial Pathway: Leigh Creek Energy Limited (ASX: LCK) is an explorer and developer of energy and minerals. The company has recently announced that the Statement of Environmental Objectives (SEO) for geophysical operations has been published in SA Government Gazette via the Department for Energy and Mining, which will allow LCK to proceed with seismic acquisition across the entire Petroleum Exploration Licence (PEL) 650 at Leigh Creek.

Receipt of Tax Rebate: The company has recently announced the receipt of a Research and Development Tax Incentive cash rebate from the Australian Tax Office of $6.38 million. During FY 2019, LCK witnessed an operating loss of $9.53 million owing to increase in depreciation, other expenses and finance cost. In the time span of 3 years from FY16 to FY19, the company witnessed a CAGR of 44.22% in revenue.


Financial Performance (Source: Company Reports)

Future Expectations: LCK is making significant progress on securing a strategic and cornerstone partner for Leigh Creek Energy Project (LCEP). In order to reduce requirements for future capital raises, LCK is looking at complimentary upstream oil and gas assets for entry as a non-operated Joint Venture partner and is looking at several opportunities in Onshore Australia that, if successful, will generate cash flow in next 2-3 years.

Stock Recommendation: As per ASX, the stock of LCK gave a return of 14.29% in the last one year and return of 33.33% on the YTD basis. The stock is currently trading close to its 52-week’s low level of $0.089, offering a decent opportunity for accumulation. During the year, current ratio of the company stood at 1.82x, higher than the industry median of 1.21x. The company also reported a stable balance sheet with Debt/Equity ratio of 0.13x, lower than the industry median of 0.24x. In terms of valuation, Price/Book Value multiple stood at 3x, lower than the industry average (Energy) of 7.8x. Thus, considering the returns, trading levels, stability in financial position and price to book value multiple, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.150, down by 6.25% on December 12, 2019.
 

SportsHero Limited

Successful Launch of Kita Garuda App: SportsHero Limited (ASX: SHO) is a gamified social sports prediction platform where users can predict, interact and compete on major sports virtually and in real-time. As on 12 December 2019, the market capitalisation of the company stood at $10.83 million. The company entered into an initial Partnership Agreement with PSSI, boasting an engaged fan base of 80 Mn fans, over 4 leagues as well as 128 teams.SportsHero has also announced that soft launch of its bespoke white label mobile application, i.e. ‘Kita Garuda’, developed for Football Association of Indonesia (PSSI), achieved encouraging initial user as well as engagement results.

Substantial Rise in Revenue: During the quarter ended 30 September 2019, without dilution to the company’s fully diluted capital structure, it managed to raise $2.68 Mn after the exercise by the institutional and other investors of 53.65 Mn $0.05 options. For the year ended 30 June 2019, revenue of the company stood at US$463,791, up from US$16,841 in FY18.


Financial Performance (Source: Company Reports)

Stock Recommendation: In January, co-incident with the commencement of the 2020 Piala Cup, SportsHero and PSSI will launch a web-browser version of the app which is imperative to capture additional smart phone users. As per ASX, the stock of SHO gave a negative return of 28.26% in the last one month and is trading at its 52-weeks’ low level of $0.033, offering a decent opportunity for accumulation. EBITDA margin and net margin of company showed a substantial improvement in FY 2019 on the YoY basis.During the year, current ratio of the company stood at 0.61x, higher than the industry median of 0.07x. In terms of valuation, the stock is trading at an EV/Sales multiple of 16.6x as compared to the industry median of 77.7x.Thus, taking on account the trading levels, improvement in EBITDA and net margins, and lower EV/Sales multiple, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.033 per share on December 12, 2019.

 
Comparative Price Chart (Source: Thomson Reuters)

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