Ramelius Resources Limited 

RMS Details

FY20 Result Highlights: Ramelius Resources Limited (ASX: RMS) is a Western Australian gold producer that operates the Mt Magnet, Vivien, Edna May and Marda gold mines and associated processing plants around Western Australia. For the year ended 30 June 2020, the company reported total production of 230koz, up 17% on FY19. During the year, the company generated revenue of $460.57 million, up 31% on FY19. Further, the company earned record statutory net profit after tax of $113.4 million, up 420% on FY19, driven by higher gold price and higher production. The company has declared a total dividend of 2 cents per share, up 100% on FY19.

FY20 Results (Source: Company Reports)

What to Expect: With a robust balance sheet, the company seems to be well placed to act on growth opportunities, both internal and external. For FY21, the company expects its total production to be in the range of 260,000–280,000oz at an AISC of A$1,230–$1,330/oz. For the September quarter, the company expects its gold production to be in between 65,000 – 70,000 ounces at an AISC of A$1,250 – A$1,350/oz.

COVID-19 Update: To control the risk of infection and transmission of COVID-19, the company has implemented several safety measures, which include suspending international travel; restricting non-essential domestic and intrastate travel; maintaining social distancing; and proactive temperature testing and screening of individuals prior to entering the company’s sites. As per the update provided on 24 August 2020, the COVID-19 virus had no material impact on the operations of RMS.

Key Risks: The company is exposed to the risk and uncertainties related to Covid-19 pandemic. Further, the company is also exposed to risk related to the fluctuations in the United States Dollar (USD) spot gold price and AUD/USD exchange rate, changes in Government regulations, and climate change.

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

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

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

Stock Recommendation: In the last one year, the stock of RMS has provided a return of 76.32% and in the past three months it has provided a return of 16.86%. The stock is currently inclined towards its 52 weeks high of $2.400. On the technical analyses front, the stock has a support level of ~1.919 and a resistance level of ~$2.112. The company has a robust balance sheet with cash & bullion of $185.5 million and bank debt of $24.4 million. We have valued the stock using the Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price of high single-digit upside (in percentage terms). For the purpose, we have taken peers like Regis Resources Ltd (ASX: RRL), Westgold Resources Ltd (ASX: WGC), and St Barbara Ltd (ASX: SBM). Considering the company’s decent FY20 results, its FY21 guidance, and robust balance sheet, we give a “Hold” recommendation on the stock at the current market price of $2.02, up by 0.498% on 24 August 2020.

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

Senex Energy Limited

SXY Details

FY20 Result Highlights: Senex Energy Limited (ASX: SXY) is an independent Australian oil and gas exploration and production company with a market capitalisation of ~$400.98 million. For the year ended 30^th June 2020, the company reported total production of 2.1 mmboe, compared with 1.2 mmboe the year before, representing an increase of 73%, driven by the strong production performance across Senex’s Surat Basin assets. Over the year, the company’s sales revenue grew by 28% to $120 million and underlying EBITDA increased by 51% to $53 million. During the year, the company completed its $400 million Surat Basin capital works program and delivered a major Surat Basin gas reserves upgrade. At the end of FY20, the company had a robust balance sheet with cash reserves of $80 million and net debt of $45 million.

FY20 Financial Highlights (Source: Company Reports)

Outlook: Going forward, the company’s key focus is on cash generation, shareholder returns and low-risk high-return growth. In FY21, the company expects to deliver strong growth in production, earnings and cashflow. The company expects its FY21 production to be in between 3.2 – 3.6 mmboe and Underlying EBITDA to be in the range of $65 – 75 million. The total capital expenditure in FY21 is expected to be in between $40 million - $50 million. The company expects a free cashflow breakeven of less than US$15/bbl in FY21. In FY22, the company is targeting Foundation Asset Base underlying EBITDA of $100 – 110 million and free cashflow of $70 – 90 million.

FY21 Guidance (Source: Company Reports)

Covid-19 Update: In response to Covid-19, the company implemented several stringent measures to ensure business continuity and uninterrupted operations. As a result of this, the company has been able to operate at full capacity with minimal impact on its operations or supply chains. Due to the effects of COVID-19 on energy market fundamentals, the average realised oil price in FY20 reduced by 11% to $89.5/bbl. Further, the company incurred a non-cash impairment of $52.1 million due to COVID-19.

Key Risks: The company is exposed to exploration and development risks as its production growth is dependent on its ability to continue to discover, develop and deliver resources and reserves. Further, the company is exposed to the risks related to the fluctuations in the global oil prices, the AUD/USD exchange rate and spot and contract gas prices. A change of government policy and changes to relevant legislation or regulations may impact the company’s operations.

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: Over the last three months, the stock of SXY has increased by 34.15% on ASX and is trading slightly above the average of its 52-weeks trading range of $0.120 - $0.425. On the technical analyses front, the stock has a support level of ~0.231 and a resistance level of ~$0.355. We have valued the stock using the EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers like Cooper Energy Ltd (ASX: COE), Energy Resources of Australia Ltd (ASX: ERA), and Z Energy Ltd (ASX: ZEL). Considering the company’s resilient production and cashflow profile, its decent FY20 results, FY21 guidance and robust balance sheet, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.275 on 24 August 2020.

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

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