APA Group

APA Details
 
Agreement with Emperor Energy: APA Group (ASX: APA) operates a leading natural gas infrastructure business of Australia with a market capitalisation of $13.26 Bn as on 19^th May 2020. The company has recently inked a binding agreement with Emperor Energy to progress with the Pre-Front End Engineering Design (Pre-FEED) for the provision of midstream infrastructure and services related to gas which will be produced from the Judith Gas Field owned by Emperor Energy. The Pre-FEED study would commence in July 2020 and requires 4 months to complete. APA group would carry out the work using a balanced combination of in house and external expertise. The below picture gives an overview of the financial summary:


Financial Summary (Source: Company Reports)

Guidance for the Year Ahead: For FY20, the company expects EBITDA in the range of $1,635 million - $1,655 million and expects to pay a distribution of 50.0 cents per security.

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

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: APA has recently priced EUR 600 million of senior unsecured notes in the European debt capital markets with respect to the Regulation S under the US Securities Act. It would utilise the proceeds for the repayment of debts maturing in July 2020, and for general corporate purposes. We have valued the stock using P/CF multiple based illustrative relative valuation methodand arrived at a target price with an upside of high-single-digit (in percentage terms). For the purpose, we have taken peers like Contact Energy Ltd (ASX: CEN), Genesis Energy Ltd (ASX: GNE) and Mercury NZ Ltd (ASX: MCY). Therefore, considering the recent agreement with Emperor Energy, decent outlook and recent funding from unsecured notes, we maintain “Hold” rating on the stock at the current market price of $11.560 per share, up by 2.847% on 19^th May 2020.

 
APA Daily Technical Chart(Source: Refinitiv, Thomson Reuters)

 

Meridian Energy Limited

MEZ Details
 
Operating Report for April 2020: Meridian Energy Limited (ASX: MEZ) is involved in the generation and retailing of electricity. The market capitalisation of the company stood at $11.41 Bn as on 19^th May 2020. Recently, the company notified the market players with the operating report for the month of April 2020. The company stated that in the April month to 11 May 2020, the national hydro storage witnessed a rise from 94% to 103% of the historical average. The company’s total inflows were 85% of historical average in April 2020. During April 2020, the company experienced a rise of 11.8%, 7.7% and 1.4% in the residential, agricultural, and corporate segment sales, respectively, relative to April 2019. The national electricity demand in April 2020 went down by 13.7% as compared to the same month last year.


National Hydro Storage (Source: Company Reports)

Future Focus of MEZ: The focus of the company revolves around the development of electricity generation opportunities in New Zealand.

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

EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Current ratio of the company stood at 0.92x in 1H FY20, reflecting YoY growth of 69.7%. This indicates that MEZ has improved its liquidity position to pay its short-term obligations against the broader industry. The stock of MEZ is trading at a premium P/E multiple of 31.32x against the industry median (Electric Utilities & IPPs) of 15.1x on TTM basis. We have valued the stock using an EV to Sales multiple based illustrative relative valuation method and arrived at a correction of low single-digit (in percentage terms). Thus, in light of decline in national electricity demand during April 2020, current trading levels and valuations, we have a watch stance on the stock at the current market price of $4.460 per share, up by 0.225% on 19^th May 2020.

 
MEZ Daily Technical Chart(Source: Refinitiv, Thomson Reuters)
 

Spark Infrastructure Group

SKI Details
 
Decline in Electricity Demand: Spark Infrastructure Group (ASX: SKI) owns a diversified portfolio of quality essential services. The market capitalisation of the company stood at $3.5 bn as on 19^th May 2020. The company recently stated that the energy demand in the National Electricity Market (NEM) has witnessed a decline, with March number indicating a decline of 6.6% in NSW, 6.8% in Victoria and 11.1% in South Australia. During FY19, the company recorded a rise in EBITDA of 3.7% to $859.1 million due to cost efficiencies and growth in the regulated and unregulated sectors. The company has increased its corporate debt facilities to $400 million for supporting organic growth in TransGrid, renewables and other core business opportunities.


Key Financials (Source: Company Reports)

Distribution Guidance for FY20: Spark has reiterated its distribution guidance of 13.5 cents per share for FY20. The company is continuously monitoring the developments and opportunities in contracted renewables generation.

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

P/BV Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
Stock Recommendation: The objective of the company revolves around to deliver long-term value via capital growth and distributions to securityholders from its portfolio of high-quality, long-life essential services infrastructure businesses. We have valued the stock using Price to Book Value multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as AusNet Services Ltd (ASX: AST), APA Group (ASX: APA), Infratil Ltd (ASX: IFT) etc. As a result, we have arrived at a target with an upside of lower double-digit (in percentage terms). Hence, in light of the company’s objective, reiterated distribution guidance and focus on opportunities in renewable space, we give a “Buy” recommendation on the stock at the current market price of $2.010 per share, down by 0.985% on 19^th May 2020.

 
SKI Daily Technical Chart(Source: Refinitiv, Thomson Reuters)

 

Azure Minerals Limited

AZS Details
 
Mining Industry Designated as Essential Services: Azure Minerals Limited (ASX: AZS) is engaged in the exploration of base and precious metals. The market capitalisation of the company stood at $14.27 Mn as on 19^th May 2020. In a recent COVID-19 update, the company stated that the Mexican Government has declared the mining industry, including exploration, as an essential service. The company has been allowed to re-commence its operations from 1^st June 2020. The company is designing and implementing strict health, safety, and hygiene standards to minimize the risk of infection at its office and field.

AZS would be focused on silver, gold, and copper mineralised targets at Alacrán. The company added that the resumption of field exploration would follow up silver, gold and copper targets which were identified in the most recent drilling campaign on the company’s 100%-owned Alacrán Project. Major priorities include Mina San Simon where drilling near old mine workings has returned 21m @ 2.0g/t Au & 64g/t Ag.

Expenses During March Quarter: During the March quarter, the company spent around $1,138,000 on the exploration activities and $102,000 on the production activities. Over the quarter, the company made payments to related parties and their associates of $194,000 and consisted of $37,000 Director fees and $157,000 Executive Service fees.

 
Cash Outflows for March 2020 Quarter (Source: Company Reports)
Stock Recommendation: Current ratio of the company stood at 5.12x in 1H FY20 against the industry median of 1.81x. This implies that AZS is in a decent position to address its short-term obligations as compared to the peer group. The stock of AZS is trading at a price to book multiple of 1.4x, which is lower than the industry average (Metals & Mining) of 3.2x on TTM basis. The stock of Azure is inclined towards its 52-week lower levels of $0.048, proffering decent opportunity to accumulate. Hence, considering decent liquidity position, diversified business model and re-commencement of operation from 1^st June 2020, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.110 per share, up by 25% on 19^th May 2020.

 
AZS Daily Technical Chart(Source: Refinitiv, Thomson Reuters)
 
 

Nickel Mines Limited

NIC Details
 
Equity Raising to Fund RKEF Ownership Options: Nickel Mines Limited (ASX: NIC) is in the production of nickel pig iron and nickel ore. The market capitalisation of the company stood at $940.99 Mn as on 19^th May 2020. NIC recently announced that it has decided to increase its current 60% ownership interests in the Hengjaya Nickel RKEF Project (HNI) and the Ranger Nickel RKEF Project (RNI) to 80%. It further announced the capital raising of A$231 million through a fully underwritten 1 for 3.6 entitlement offer comprising of institutional entitlement offer and retail entitlement offer. The company would use the proceeds for financing intended exercise of RKEF ownership in HNI and RNI. 

The company has a collaboration agreement with Shanghai Decent over both projects. Under the contracts,Nickel Mines has an option to acquire an additional 20% in each project before 30 November 2020.


Sources and Uses of Funds (Source: Company Reports)

Future Aspects: The company continues to work in order to establish personal development and training program with local and regional stakeholders.

Stock Recommendation: As at 31^st March 2020, the cash and cash equivalents of the company stood at US$72.9 million. The securities of NIC have been placed in a trading halt owing to the release of announcement with respect to the outcome of the institutional component of the accelerated entitlement offer. The stock will remain in a trading halt until the earlier of the commencement of normal trading on 21^st May 2020 or when the pending announcement is made to the market. The stock last traded at the market price of $0.565 per share.

 
NIC Daily Technical Chart(Source: Refinitiv, Thomson Reuters)

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