NRW Holdings Limited

Business Update: NRW Holdings Limited (ASX: NWH) engages in diversified contract services to the resources and infrastructure sectors that operate in Civil, Mining, and Minerals, Energy & Technologies in Australia. Recently, the company’s wholly owned subsidiary Primero Group has been awarded EPC from the Finniss Lithium Process Plant situated in the Northern Territory, near Darwin.

• Further, it plans to commence the project in March 2022 and scheduled its first lithium production for Q4 2022.
• The project gained all NT government approvals and was well-funded as it had raised its capital from different sources.

FY21 Financial Performance:

• The company has recorded strong revenue growth of 11.5% to $2.3 billion in FY21, compared to FY20, which was contributed by the strategic acquisition of BGC Contracting and Primero Group.
• It has reported an EBITDA of $266.7 million, reflecting an increase of 6.7% over the pcp. However, EBIT of $120.6 million is lower than FY20 due to WA Pilbara project cost increases.
• The company has reported a net profit of $54.29 million in FY21, compared to $73.74 million in FY20 due to a rise in depreciation and amortisation expenses and other expenses which had impacted the earnings.
• The cash position of the company stood at $146.54 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant impact on its operation due to low demand and economic slowdown that has impacted the company's operations, and still, the uncertainty prevails.
• Capital Adequacy- The company is exposed to capital adequacy risk that could impact the customer-centric offering and operational activity.

Outlook:

• Opportunities in the project pipeline remains strong at $14.5 billion across all business segments.
• The management guided revenue to be between $2.4 billion to $2.5 billion and Earnings (Operating EBIT) to be between $145 million and $155 million in FY22.
  

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 Commonwealth Bank of Australia and its related bodies became a substantial shareholder in the company with a voting power of 5.10%. The stock of NWH is trading below its average 52-weeks' levels of $1.360-$3.190. The stock of NWH gave a positive return of ~11.78% in the past three months and a negative return of ~17.82% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers' average, considering the uncertainty of the COVID-19 pandemic and an increase in cash cycle days. For the purpose of valuation, peers such as Perenti Global Ltd (ASX: PRN), Monadelphous Group Ltd (ASX: MND), Macmahon Holdings Ltd (ASX: MAH) have been considered. Considering the current trading levels, indicative upside in valuation, strategic acquisition, opportunities in the pipeline and optimistic outlook, we recommend a ‘Buy' rating on the stock at the current market price of $1.635, down by ~0.305% as on 28 September 2021.

NWH Daily Technical Chart, Data Source: REFINITIV

Austal Limited

Resignation of CFO: Austal Limited (ASX: ASB) is a global shipbuilder and defence prime contractor that designs, manufactures, and supports highly efficient vessels for government and commercial operators. Recently, Greg Jason, Chief Financial Officer (CFO), resigned from the company and will conclude his tenure in December 2021.

FY21 Financial Performance:

• The company has recorded revenue of $1.572 billion in FY21, down by 24.6% from $2.086 billion in FY20, impacted by the COVID-19 pandemic.
• The company has delivered a decreased EBIT by 12.1% to $114.6 million in FY21 against $130.4 million in FY20. In addition, an appreciating Australian Dollar against the US Dollar had a negative impact of ~$11.1 million on EBIT.
• Despite the Covid-19 disruption, it has reported net profit of $1 million in FY21, against $89.0 million in FY20, predominantly driven by enhanced shipbuilding margins, particularly in the USA.
• The net cash position of the company stood at $231.9 million as of 30 June 2021.

Gross Margin Performance (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has faced challenges in its operations due to COVID-19 that has impacted the volume and delays in contracted work.
• Foreign Currency Risk- The company’s operations are exposed to the global market, due to which the company could face the foreign currency risk.

Outlook:

• The management has given a guidance for FY22 revenue of $1,500 million @ 0.75 USD / AUD.
• The company expects to deliver continued momentum as the Littoral Combat Ship construction program winds down over the next three years, which might enable it to transact to the next phase of growth.
• It targets to progress construction and commence its first steel vessel by May 2022. Further, it peruses its first program to demonstrate steel capability with the T-ATS programme.

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 company has appointed Rusty Murdaugh as President of Austal USA, effective 9th September 2021. The stock of ASB is trading below its average 52-weeks' levels of $1.610-$3.545. The stock of ASB gave a positive return of ~11.04% in the past one week and a negative return of ~43.80% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers, considering the impact of COVID-19 pandemic and decrease in asset turnover ratio . For the purpose of valuation, peers such as Quickstep Holdings Ltd (ASX: QHL), Monadelphous Group Ltd (ASX: MND), NRW Holdings Ltd (ASX: NWH) have been considered. Considering the current trading levels, indicative upside in valuation, commencement plans of its first steel vessel, contract from USA, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.825, as on 28 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

ASB Daily Technical Chart, Data Source: REFINITIV

Sunrise Energy Metals Limited

Business Update: Sunrise Energy Metals Limited (ASX: SRL) engages in the development of world-class Sunrise Battery Materials Complex in New South Wales, utilising its Clean-iX technology. As per a recent update, its director Trevor Roland Eton has acquired 12,000 ordinary shares of the company for a total consideration of $20,354.45.

FY21 Financial Performance:

• The company has recorded robust growth in revenue and other income of 1,893% to $877k in FY21, compared to $44k in FY20, primarily due to higher government grant income.
• In FY21, the Exploration and evaluation expenses were $4.09 million. In addition, further Legal and professional expenses increased to $2.40 million from $917k.
• The company has narrowed down its net loss from continuing operations to $17.08 million in FY21 from $189.7 million in FY20, driven by strong top-line growth.
• The cash position of the company stood at $38.65 million as of 30 June 2021.

Total Asset (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has faced challenges to fund the new projects due to the COVID-19 disruption, which affected the company's operations.
• Regulatory Risk- To commercialise its product, the company requires certain approvals, and any delays could impact its financial operations.

Outlook:

• The company anticipates a strong market demand for EVs, particularly in Europe, as carmakers focus on supply chains, environmental and social aspects. Further, despite the economic crunch during the COVID-19, global EV sales surged, with a healthy growth trajectory.
• The experts forecasted the long-term nickel and cobalt sulphate prices at US$24,200/t (including sulphate premium) (US$10.98/lb) and US$59,200/t (US$26.85/lb respectively.
• Moreover, its project is anticipated to deliver over US$16 billion in revenue and an average annual (real) post-tax-free cash flow of US$308 million over the first 25 years of operations.
  

Valuation Methodology: Price/Book 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 SRL is trading below its average 52-weeks' levels of $1.315-$3.600. The stock of SRL gave a negative return of ~4.73% in the past one month and a negative return of ~37.62% in the past one year. The stock has been valued using Price/Book Value multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount to its peers' average, considering the uncertainty of the COVID-19 pandemic and muted profitability. For the purpose of valuation, peers such as IGO Ltd (ASX: IGO), Capricorn Metals Ltd (ASX: CMM), Nickel Mines Ltd (ASX: NIC) have been considered. Considering the current trading levels, indicative upside in valuation, raise of capital, strategic investment, government grants, increasing demand for EVs, optimistic outlook, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $1.610, as on 28 September 2021, 1:47 PM (GMT+10), Sydney, Eastern Australia.

SRL 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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