Northern Star Resources Ltd

NST Details

Becoming a Substantial Holder: Northern Star Resources Ltd (ASX: NST) is engaged in the production and exploration of gold and other minerals. On 1^st October 2021, Vanguard Group (The Vanguard Group, Inc. and its controlled entities) became a substantial holder in the company with a voting power of 5.004%.

FY21 Financial Summary:

• Decent Growth in Revenue: For the year ended 30^th June 2021, the company recorded revenue amounting to $2.76 billion against ~$1.97 billion, indicating a growth of 40% mainly due to a rise of 3% in average realised gold price per ounce of $2,273/oz and a 33% increase in gold sales.
• Rise in Gold Production: NST witnessed a growth of 13% in annualised gold recovery to 1,605,405oz against 1,425,591oz in FY20 at an annualised all-in sustaining cost (AISC) of $1,483/oz.
• Underlying Business Strength Backed by Solid Cash Earnings: The company’s underlying business possesses solid strength, evident by the growth of 10% in the cash earnings of $648 million as compared to $588 million.
• New Dividend Policy: NST declared a fully franked final dividend of 9.5 cps, which took the full-year dividend to 19 cps. The company also introduced a new dividend policy, which is targeting a total annual dividend payment of 20-30% of Cash Earnings.

Dividend History (Source: Analysis by Kalkine Group)

 Key Risks:

• Price Risk: The company’s operational and financial health could be impacted by any adverse movement in the gold prices, as it derives a major portion of revenue from gold.
• Climate Change: NST is exposed to risk arising from a change in climate, as the company may require suspending mining operations due to bad weather and climate.

Outlook:

• For FY22, the company is expecting gold production in the range of 1,550-1,650koz at an AISC of between $1,475-$1,575/oz.
• In addition, the company is targeting profitable production growth to 2Moz per annum by FY26.
• The company has scheduled to release a quarterly report for the period ended 30 September 2021 on 19^th October 2021 and will conduct the 2021 Annual General Meeting on 18^th November 2021.

Valuation Methodology: P/E 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: As on 30^th June 2021, the cash and bullion balance of the company stood at $799 million against $748 million as on 30^th June 2020. In addition, at the end of FY21 corporate bank debt stood at $662 million. The stock is trading below its 52-week low-high average of $7.955 - $17.030, respectively. The stock of NST has been corrected by ~10.78% and ~11.11% in the past three and six months, respectively. The stock has been valued using the P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers’ average P/E multiple, considering the growing revenue, increasing gold production, and decent liquidity position. For this purpose of valuation, peers such as Evolution Mining Ltd (ASX: EVN), IGO Ltd (ASX: IGO), Western Areas Ltd (ASX: WSA), and others have been considered. Considering the expected upside in valuation, increasing topline, solid cash earnings, consistent dividend payment, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $9.600, as on 14^th October 2021, 11:54 AM (GMT+10), Sydney, Eastern Australia.

NST Daily Technical Chart, Data Source: REFINITIV  

MACA Limited

MLD Details

Extension to Contract:  MACA Limited (ASX: MLD) is engaged in the provisioning of contract mining, civil & infrastructure, and structural, mechanical and piping (through Interquip) services to the resource sector. Recently, the company announced the appointment of Mr. David Flanagan as an Independent Non-Executive Director, which became effective on 30^th September 2021. In the month of September 2021, MLD secured an extension of its mining services contract with Pilbara Minerals for a further 12 months at the Pilgangoora Lithium Project. The said extension is likely to derive revenue of around $70 million over the 12-month term through to November 2022.

FY21 Financial Summary:

• Increase in Topline: During FY21, the company witnessed an improved performance in its underlying business operations, evident by a record rise of 45% in revenue to $1,173.9 million as compared to $808.0 million in FY20.
• EBITDA and EBIT: On a reported basis, NST recorded EBITDA and EBIT of $140.4 million and $40.2 million, reflecting margins of 12% and 3.4%, respectively.
• Rise in Operational Cash Flow: Operating cash flow for the year stood at $118.8 million against $116.6 million in FY20, with strong operational cash flows in the 2H FY21.

Revenue and EBITDA Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Contract Pricing Risk: MLD is exposed to a risk arising from the change in the pricing of the contract, which may impact the financial health of the business.
• Project Delivery Risk: Any failure in the execution and delivery of projects could impact the business performance.

Outlook:

• The company possesses a pipeline of organic growth opportunities of $11 billion in the Mining, Civil & Infrastructure and Interquip divisions.
• MLD is optimistic that the improved performance of its enlarged Mining Division is likely to be maintained in FY22.
• MLD’s mining division entered FY22 with secured work in hand of approx. $1.2 billion, and MLD is in a decent position to increase its record order book.

Valuation Methodology: P/E 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 company closed FY21 with a net debt position of $180.2 million against $73.4 million as on 30^th June 2020. The cash balance at the end of FY21 stood at $122.3 million as compared to $114.7 million as on 30^th June 2020. The stock of MLD is trading below its 52-week low-high average of $0.645 - $1.515, respectively. The stock of MLD gave a negative return of ~7.97% in the past one month. The stock has been valued using the P/E multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 disruptions, low current ratio, and leveraged balance sheet. For this purpose of valuation, peers such as Macmahon Holdings Ltd (ASX: MAH), Emeco Holdings Ltd (ASX: EHL), and NRW Holdings Ltd (ASX: NWH) have been considered. Considering the expected upside in valuation, decent outlook, increasing EBITDA, growing cash from operations, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.740 as on 14^th October 2021, 11:54 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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