Perenti Global Limited

PRN Details

H1FY22 Financial Update: Perenti Global Limited (ASX: PRN) is a diversified global mining services group that provides surface and underground mining services.

• Operational Update: In H1FY22, total revenues were registered at $1,192.4 million and edged up by 17.7% PcP as growth projects ramped up. EBITDA dipped to $201.8 million broadly in line with H1FY21, while margins shrunk to 16.9% by 288bps due to Australia’s labour supply shortages and inclusion of idoba.
• Cash Flow Status: PRN clocked 94% operating cash conversion relative to 92% PcP and due to higher finance costs and taxes, operating cash flows slopped by 3% and stood at $130.5 million. Asset sale proceeds clocked $36.2 million inflow, and growth capital clocked $122.2 million outflows. Net cash outflows stood at around $8.9 million.
• Liquidity and Leverage Overview: Net leverage stood at 1.3x with gearing of 28.4% and EBITDA interest coverage of 8.1x. The undrawn revolving facility stood at $280.8 million, and the cash position stood at $258.9 million.

H1FY22 Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges

The labour shortages and supply chain constraints have significantly affected daily business operations owing to the recent crunch in Australian labour supply and increased freight prices. The business is susceptible to immense competition from technological aspects.

Outlook

FY22 revenue guidance was uplifted from a range of $2.0 - $2.2 billion to $2.2 - $2.4 billion. EBIT(A) for FY22 is projected to clock $165 million to $185 million. The company seeks to expand the delivery margin across underground projects, particularly Dugald River, Agnew, and Zone 5.

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 PRN gave a negative return of ~33.17% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.625 - $1.175. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the uncertainties surrounding the labour supply constraints and high potential competition, the company might trade at some discount to its peers’ EV/Sales multiple average. For valuation, few peers like Macmahon Holdings Ltd (ASX: MAH), Metro Mining Ltd (ASX: MMI), BlueScope Steel Ltd (ASX: BSL) and others have been considered. Given the decent H1FY22 performance, raised revenue guidance, high growth potential in Australia’s giant metals and mining industry, current trading levels, upside indicated by valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.700, as of 09 March 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

PRN Daily Technical Chart, Data Source: REFINITIV

Cyprium Metals Limited

CYM Details

Q4FY21 Activity Update: Cyprium Metals Limited (ASX: CYM) is engaged in exploring and developing minerals. On 28 February 2022, CYM assay results were received from additional 16 RC holes drilled at the Nifty West, targeting copper mineralisation.

• Nifty Copper Project: Nifty Heap Leach Restart development activities during the quarter included an updated estimate of mineral resource to 45.9Mt at 1.6% Cu for 732,200 tonnes total contained copper metal.
• Maroochydore Drilling: Maroochydore Mineral Resource extensional and infill drilling program was completed. Oxide mineralisation extended over 3,000 meters with a width up to 800 meters and thickness up to 100 meters.
• Murchison Drilling: Assay was received from two of the final diamond holes at Nanadie Well. Extensive copper-gold sulphide mineralisation was intersected and extended over 168 meters and 274 meters downhole.

Q4FY21 Cash Flow Movements; Analysis by Kalkine Group

Key Risks and Challenges

CYM business is exposed to high commodity price volatility risks, potentially affecting financial health. Nil revenue generation from operational activities also poses an investment and profitability risk.

Outlook

For March 2022 quarter, the company would focus on Nifty Heap Leach Restart development to build an efficient, long-term copper mine production.

Stock Recommendation: The stock of CYM gave a negative return of ~46.154% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.130 - $0.370, offering a decent accumulation opportunity. The stock is trading at a P/BV multiple of 0.8x compared to the industry median (Metals & Mining) of 2.3x on a TTM basis, signalling undervaluation. Given the decent exploration prospects, favourable assay results, appropriate liquidity position, current trading levels, upside indicated by valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.135, as of 09 March 2022.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

CYM Daily Technical Chart, Data Source: REFINITIV

Disclosure: Cyprium Metals Limited (Company) is a client of Kalkine Media Pty Ltd (Kalkine Media), an affiliate of Kalkine. However, under no circumstances have Kalkine or its related entities been, directly or indirectly influenced in making any related insights concerning Company as contained in this report, and no form of compensation is or will be received by Kalkine, Kalkine Media or Kalkine’s other related entities for the publication of this report.

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

Note 2: Investment decisions should depend on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is 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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