Syrah Resources, Orocobre, Western Areas, Select Harvests and Retail Food Group  

Syrah Resources Limited

SYR Details
 
Mining Agreement approval from Mozambique Government: As at September 04, 2017, Syrah Resources Limited (ASX: SYR) was one of the stocks that witnessed a short sales activity. In the last one month, the stock has moved up 8% (as at September 04, 2017). SYR recently reported that their subsidiary, Twigg Exploration and Mining, Limitada, who is the holder of their core Balama Project, got mining agreement approval from Mozambique Government. Meanwhile, Syrah has been making strong marketing efforts leading to the extension of their agreement with Marubeni from three years to five years and volumes enhanced from 20ktpa to 30ktpa. They also confirmed agreement with Hiller Carbon from a minimum of 10ktpa to a maximum of 50ktpa. SYR even confirmed 5-year sales agreement with MINERALS GmbH for 12ktpa to 25ktpa. Given the developments, we maintain a “Hold” recommendation on the stock at the current price of $ 3.00

 

SYR Daily Chart (Source: Thomson Reuters) 

Orocobre Limited

ORE Details

Outstanding FY17 performance:Orocobre Limited (ASX: ORE) is reported to have 0.11% of issued capital as short sold as at September 04, 2017. ORE had reported a strong production of 11,862 tonnes of lithium carbonate for fiscal year of 2017 and expects over 14,000 tonnes of production for FY18.

 
Overall FY17 performance (Source: Company reports)
 
The group reported a profit of US$19.4 million, driven by sale of assets of US$14.8 million offsetting the impairment of Borax Argentina of US$8.1 million, as compared to the loss of US$22 million in fiscal year of 2016. Orocobre has a decent cash of US$51.6 million. Their lithium carbonate production surged 72% year on year (yoy) against FY16, while their sales revenue reached US$120 million in FY17 as compared to US$15 million (2 months) in prior corresponding period (pcp). Orocobre managed to be among the low-cost producers with gross operating margins of 62% with lithium production costs at US$3,710/tonne. The group had received VAT refunds of over US$23.5 million while rest of VAT refund entitlements are US$20 million on an undiscounted basis. ORE stock surged over 15.7% in the last five days (as of September 04, 2017) and is down 2% on September 05, 2017. The profit turnaround, record production, and growth plans support the stock momentum for a longer-term. We give a “Buy” on the stock at the current price of $ 3.81

 

ORE Daily Chart (Source: Thomson Reuters) 

Western Areas Limited

WSA Details

Banking on organic growth pipeline: Western Areas Limited (ASX: WSA) has been another stock shorted on ASX as at September 04, 2017. For FY17, WSA has delivered a mine production of 25,996 nickel tonnes which was in line with their guidance range of 25,000 to 26,000 nickel tonnes. Mill production reached 23,005 nickel tonnes also on track with their guided range of 22,000 to 23,000 nickel tonnes. They delivered a strong mill throughput of 617,808 tonnes with 98% availability (nameplate capacity 550,000tpa). Moreover, management reported that the nickel prices have started recovering from the beginning of FY18 which reached an average of US$4.75/lb as compared to the US$3.90/lb price in June 2017. Demand in the high end stainless steel market, especially in China, has been said to be improved while electric vehicle battery market is also growing exponentially.

 

FY18 guidance (Source: Company reports)
 
WSA also signed for better offtake contract terms with BHP Nickel West and added a new customer, Tsingshan Group for three years. WSA enhanced their cash by A$28.3 million to A$140.3 million post the share sell down of Bluejay Mining Plc. WSA’s FY17 net profit after tax also grew 165% to $19.3 million and the overall result with positive outlook on advancing group portfolio might be a food for thought for the short sellers. The shares of WSA recovered over 25% in the last three months (as of September 04, 2017) and we maintain a “Buy” on the stock at the current price of $ 2.74

 

WSA Daily Chart (Source: Thomson Reuters) 

Select Harvests Limited

SHV Details
 
Decline in crop prices:Select Harvests Limited (ASX: SHV) delivered 14,100 tonnes of crop in 2017 as compared to 14,200 tonnes in the prior corresponding period. Moreover, the estimated price for the 2017 crop fell to A$7.43/kg during the period against A$8.08/kg in the prior corresponding period. SHV sold or committed for sale 72% of the 2017 crop at an average price of A$7.91/kg (AUD/USD exchange rate of 0.75). Moreover, higher operating costs including lease revaluations impacted the NPAT which fell to A$9.2 million against the reported NPAT of A$33.8 million in prior corresponding period. The group’s Food Division result has been impacted by falling volumes of Select Harvests manufactured domestic retailer brand products and rising energy prices in the processing facilities. SHV stock crashed over 31% in the last six months (as of September 04, 2017). Given the gloomy performance and limited prospects over near and medium term, we believe that the stock is “Expensive” at the current price of $ 4.04

 

SHV Daily Chart (Source: Thomson Reuters) 

Retail Food Group Limited

RFG Details
 
Decent top line performance: Retail Food Group Limited (ASX: RFG) reported a strong revenue growth of 27% to $349.3 million while EBITDA enhanced 12.1% on a yoy basis. NPAT rose 14% across the group.

Growing diversification (Source: Company reports)
 
The group’s efforts of diversification paid off while it generated a positive weighted Same Store Sales (SSS) and Average Transaction Values’ (SSS/ATV) growth of +0.9%/+1.8%, respectively. The Donut King performed wherein the same store sales showed an outstanding rise of 4.7%. The group is realizing synergies from their commercial division driven by their franchise network. RFG has a strong dividend yield, while we give a “Buy” on the stock at the current price of $ 5.02

 

RFG Daily Chart (Source: Thomson Reuters)

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