Karoon Energy Limited

KAR Details

Change in Substantial Shareholding: Karoon Energy Limited (ASX: KAR) is an oil producer and explorer with projects in Peru, Australia, and Brazil. On 22 October 2021, L1 Capital Pty Limited decreased its shareholding from 8.35% to 6.81% in KAR.

Key Dates & Updates:

• KAR will conduct a virtual AGM (Annual General Meeting) on 26 November 2021.
• As KAR is nearing the completion of its refreshed strategy and key goals in the next five years, the company will hold a Strategy Seminar on 28 October 2021. The seminar will be hosted by its MD & CEO, along with the CFO and the President of the Brazil Unit to present and discuss the result of the refreshed strategy.
• KAR also announced to release the Q1FY22 (September 2021 quarter) report on 28 October 2021.

 FY21 Result Highlights:

• The company reported 14 million barrels (mmbl) oil production from the Baúna Field at US$25.11/bbl, from the date of ownership of the field on 7 November 2020 until 30 June 2021.
• KAR recorded US$170.80 million of oil sales revenue in FY21 from the six oil cargoes lifted versus nil revenue in FY20.
• The company registered a statutory NPAT (net profit after tax) of US$4.40 million in FY21 versus a net loss after tax of US$86.1 million in FY20. The underlying NPAT of US$33.4 million during FY21.
• KAR held US$133.2 million cash and cash equivalents as of 30 June 2021, placing the firm in a robust financial position.

Total Revenue & Net Income Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 disrupted regular operational practices and challenges for the company’s staff and contractors. KAR faces changes in the oil price and demand, forex fluctuations, and regulatory delays for sanction on projects. 

Outlook:

• The company expects the FY22 production in the range of 4.2 – 4.6 MMbbl and unit production costs between US$28 – 32/bbl.
• After the sanction of the Patola field development and the Baúna well intervention program, these two projects are expected to increase the oil production to more than 30,000 bopd by early 2023.
• KAR expects to incur US$100-$135 million investment expenditure on the Intervention and Patola Projects in FY22. The company expects to fund the expenditure from the available cash flows, cash, and drawdowns from the US$160 million debt facility.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of KAR gave a positive return of ~60.00% in the past nine months and a positive return of ~95.56% in the past year. The stock is currently trading towards its 52-weeks’ high level of $1.810. The stock of KAR has a support level of ~$1.590 and a resistance level of ~$2.200. The stock has been valued using the EV/Sales based illustrative relative valuation method and arrived at a target price with a correction of a high single-digit downside (in % terms). The company might trade at a slight discount than its peers’ median EV/Sales multiple, considering its higher debt-to-equity ratio in FY21, expected increase in the FY22 unit production costs, and continuing risk of COVID-19 & forex rate changes. For this purpose of valuation, few peers like Cooper Energy Limited (ASX: COE), Beach Energy Limited (ASX: BPT), Calima Energy Limited (ASX: CE1), and others have been considered. Considering the current trading levels, revenue generation and NPAT in FY21, development of Patola field and Baúna well intervention program projects in FY22, buoyant oil prices, valuation, we suggest investors book profit and give a ‘Sell’ rating on the stock at the current market price of $1.810, as of 26 October 2021, (10:30 AM (GMT+10), Sydney, Eastern Australia).

KAR Daily Technical Chart, Data Source: REFINITIV 

MACA Limited

MLD Details

Signed Contract to Divest Bluff PCI Mine: MACA Limited (ASX: MLD) provides contract mining, construction, and infrastructure services to the resource sector. MLD operates in Australia and Cambodia. MLD recently entered a binding contract to sell the Queensland- based Bluff PCI Mine to Bowen Coking Coal Limited (ASX: BCB). The PCI coal operations at the mine were ceased as the client (Carabella Resources) entered voluntary administration. As per the agreed terms, MLD will get the following consideration: 

• Shares and/ or cash of ~$5 million at the BCB election, deducting $250K of cash deposit
• BCB will release ~$4.6 million of an environmental financial assurance bond
• Set of Royalty payments depending on coal sales from the mine
• MLD expects the transaction to be completed before the CY21-end subject to the necessary approvals to transfer the assets. The company will continue to explore the divestment of the remaining assets Carabella Resources (Greenfields Grosvenor West hard coking coal project) and update as the sales process advances.

FY21 Key Takeaways:

• The NPAT from continuing operations increased by a whopping 600% YoY to $25.20 million versus $3.58 million in FY20.
• MLD reported an increase of 34% YoY in work in hand from $2,320 million as of 30 June 2020 to $3,100 million as of 30 June 2021.
• The company held $122.34 million Cash and Cash Equivalents as of 30 June 2021 versus $114.65 million as of 30 June 2020.

Cash Receipts from Customers Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces fluctuations in AUD value versus other currencies due to its international operations. MLD faces counterparty risk, acquisition synergies’ risk, and risk of under-pricing on contracts.

Outlook:

• MLD will conduct its Annual General Meeting (AGM) on 18 November 2021.
• MLD expects to maintain the improved performance from its enlarged Mining Division in FY22 due to operational improvements. The division has ~$1.2 billion of secured work in hand as it enters FY22.
• The commodity prices for commodities such as gold and iron ore remain robust and are expected to generate growth avenues.
• The Civil and Infrastructure businesses witnessed increased new resource projects activity in FY21 which is expected to flow into FY22.
• MLD has an $11 billion pipeline of organic growth opportunities across its Civil & Infrastructure, Mining, and Interquip divisions, and some of these avenues are expected to start in FY22.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of MLD gave a positive return of ~17.64% in the past month and a negative return of ~12.56% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.645 - $1.515. The stock has been valued using the Enterprise Value to EBITDA based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median EV/EBITDA multiple, considering its increase in debt-to-equity ratio and interest-bearing liabilities in FY21 and expected tight labour market due to COVID-19 restrictions. For this purpose of valuation, few peers like Macmahon Holdings Limited (ASX: MAH), Emeco Holdings Limited (ASX: EHL), Perenti Global Limited (ASX: PRN), and others have been considered. Considering the current trading levels, decent financial results in FY21, valuation upside, opportunities and work in hand pipeline and associated business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.780, as of 26 October 2021, (10:30 AM (GMT+10), Sydney, Eastern Australia).

MLD Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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