Stocks’ Details

Viva Energy Group Limited

Grant by Federal Government: Viva Energy Group Limited (ASX: VEA) is engaged in the manufacturing, distribution, and supply of petroleum products to retail and commercial customers. The market capitalisation of the company stood at ~$3.34 Bn as on 14^th December 2020. Recently, the company announced that it would be receiving interim Refinery Production Payment for six months from 1 January 2021 by Federal Government until the long-term design for the Refinery Production Payment is executed which is likely to be on or before 1 July 2021. The grant by Federal Government includes payment of not less than 1 cent per litre for the production of primary transport fuels (gasoline, diesel, and jet) refined from crude oil at Geelong Refinery. VEA is required to maintain refinery operations for the duration of the interim program and commit an open book process as well as long-term self-help measures to further inform the development of the long-term Refinery Production Payment in order to receive the grant.

For the three months ended 30^th September 2020 (Q3 FY20), the company’s total petrol sales excluding Victoria was in-line with Q3 FY19. Sales volumes in the Alliance network stood at 52.3 million litres per week, reflecting a rise of 14% over Q2 FY20. During 1H FY20, the company reported a total underlying EBITDA (RC) of $269.3 million, while Underlying EBITDA (RC) in its non-Refining businesses moved up by 14.2% to $318.7 million. The company’s fuel sales volumes were impacted by border closures and ‘stay at home’ restrictions.

Key Financials (Source: Company Reports)

Outlook: For FY20, the company is expecting capital expenditure in the range of $145 million – $180 million. In addition, VEA’s strategic priorities mainly include continued margin management in order to offset the impacts of any sustained lower sales volume environment.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow 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 closed 1H FY20 with net cash of $480.9 million and underlying free cash flow of $96.6 million. In the last one and three months, the stock of VEA has provided returns of 8.33% and 27.92%, respectively. The 52-week low-high range for the stock stands at $1.339 - $2.375, respectively. On the technical analysis front, the stock has a support level of ~A$1.626 and a resistance level of ~A$2.125. We have valued the stock using the price/cash flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as Oil Search Ltd (ASX: OSH), Worley Ltd (ASX: WOR), and Woodside Petroleum Ltd (ASX: WPL). Hence, considering the grant from Federal Government, performance in 1H FY20, decent returns in the past months, we give a “Hold” rating on the stock at the current market price of $2.050 per share, down by 0.967% on 14^th December 2020.

Coronado Global Resources, Inc.

Higher Sales Volume in Q3 FY20: Coronado Global Resources Inc. (ASX: CRN) is primarily engaged in the development and operation of premium quality metallurgical coal mines. The market capitalisation of the company stood at $1.61 Bn as on 14^th December 2020.  During September 2020 quarter (Q3 FY20), the company reported saleable production of 4.6 Mt, reflecting a rise of 31.2% over Q2 FY20, which was fueled by the resumption of the US mining operations at Buchanan and Logan and strong Australian (Curragh) performance. For the same period, CRN recorded saleable production from the Curragh mine of 3.6 Mt, indicating a rise of 24.5% on the June quarter. CRN posted sales of 4.9 Mt, which increased by 27% on the prior quarter because of higher production and improved market conditions. Revenue for the quarter amounted to US$376 million, up by 23.7% over June 2020 quarter, which was underpinned by higher sales volume. During 1H FY20, the company recorded a net loss after tax of US$123.2 million and adjusted EBITDA stood at US$34.9 million.

Key Financials (Source: Company Reports)

Outlook: For FY20, the company expects to report total saleable production in the range of 16.5 to 17 million tonnes. In addition, the company anticipates sales volume to be higher than production as customer demand is met through existing inventory levels.

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

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

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

Stock Recommendation: During Q3 FY20, CRN successfully raised $180 million of new equity and paid down debt, which provided additional liquidity and improved credit metrics. As on 30^th September 2020, the net debt of the company was reduced to $273 million from $405 million on 30 June 2020. The 52-week low-high range for the stock stands at $0.580 - $2.251, respectively. On a technical analysis front, the stock has a support level of ~$0.947 and a resistance level of ~$1.375. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the purpose, we have taken peers such as Sims Ltd (ASX: SGM), Whitehaven Coal Ltd (ASX: WHC) and Perenti Global Ltd (ASX: PRN). Thus, considering the decent performance in Q3 FY20, reduction in debt position, current trading levels, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.145 per share, down by 2.137% on 14^th December 2020.

Stanmore Coal Limited

Improvement in ROM Coal Production: Stanmore Coal Limited (ASX: SMR) is involved in the production of metallurgical and thermal coal. The market capitalisation of the company stood at ~$191.98 Mn as on 14^th December 2020. For the quarter ended 30^th September 2020 (Q1 FY21), the company reported ROM coal production of 641kt over 638kt in June 2020 quarter. Product coal production for the quarter stood at 519kt and sales were 602kt. In addition, the company also reached a $10 million shareholder loan agreement with Golden Energy and Resources Limited during the quarter. During FY20, the company recorded total coal production of 2.39 million tonnes and the proportion of metallurgical coal produced also improved to 99% on a year over year basis. During the year, the company reported record operating performance supported by a rise of 3% in the open cut run of mine (ROM) coal production to 3 million tonnes.

Key Metrics (Source: Company Reports)

Outlook: Looking forward, SMR is seeking options to navigate the decrease in production with the help of the development of other available resources. In addition, the company anticipates sales prices to return to longer-term trend levels in 2021.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow 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 closed FY20 with net cash of $32.2 million and a net asset of $168.6 million. In the last six months, the stock of SMR has corrected 14.53%, and as a result, the stock is trading towards its 52-week low level of $0.500, offering decent opportunities for accumulation. On the technical analysis front, the stock has a support level of ~A$0.637 and a resistance level of ~A$0.832. We have valued the stock using the price/cash flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers such as New Hope Corporation Ltd (ASX: NHC), Whitehaven Coal Ltd (ASX: WHC), and Yancoal Australia Ltd (ASX: YAL), to name few. Therefore, considering the improvement in ROM coal production, decent outlook, strong liquidity position, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.695 per share, down by 2.113% on 14^th December 2020. 

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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