Danakali Limited

DNK Details

Change in Directors Interest: Danakali Limited (ASX: DNK) is engaged in exploration and development of potash. Its segments include the Colluli Potash Project in the Danakil region of Eritea, East Africa. The mentioned project is a joint venture between Eritrean National Mining Corporation (ENAMCO) and Danakali. In the recent announcement, one of its directors - Seamus Ian Cornelius acquired 100,000 Fully Paid Ordinary Shares of $29,120 and changed interest.

FY21 Financial Updates:

• Revenue & Profitability Metrics: Being operates in the development stage, its revenue streams mainly comprise of interest which was reported as $43,142. The company reported a net loss after tax of $10.04 million versus a net loss of $8.26 million in FY20.
• Cash Position: DNK closed its balance sheet with a cash balance of $22.88 million ending for the period 31st December 2021, versus $9.74 million ending for the period 31st December 2020.

FY21 Cash Flow Data; Analysis by Kalkine Group

Key Risks and Challenges

Since DNK operates in mining and exploration business, mainly related to its Colluli Potash Project, so its susceptible to the risks related to findings and its salability. Other risk is currency risk which is also caused by the recent geopolitical stress across the globe.

Outlook

Africa Finance Corporation (AFC) and African Export Import Bank (Afreximbank, together the Senior Lenders), - Development finance institutions, have submitted documents related to US$200 million in relation with senior debt finance to CMSC for the Colluli Project. The project is expectedly required to get completed by the Longstop Date of 31^st March 2023.

Stock Recommendation: The stock of DNK gave a negative return of ~45.63% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.280 - $0.550. On a TTM basis, the stock of DNK is trading at Price-to-Book multiple of 1.6x, lower than the Chemicals industry median of 4.5x and lower than 2.5x of Basic Materials industry, thus seems undervalued. After considering the decent production estimates for rock sale, growth prospects for Magnesium Chloride, uptick in cash position and debt financing under consideration, current trading levels, undervaluation identified by the TTM valuation, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.290 as of 22 April 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.

DNK Daily Technical Chart, Data Source: REFINITIV

Macmahon Holdings Limited

MAH Details

Business and H1FY22 Financial Update: Macmahon Holdings Limited (ASX: MAH) is a diversified contractor that provides mining services to miners across Australia and Southeast Asia. On 6 April 2022, the company announced that the commissioning of its 100% owned Warrawoona Gold Project in the Pilbara is progressing well by EPC contractor GR Engineering Services Limited (ASX: GNG).

• Top-Line Status: Revenue for the group advanced by 24% to $809.7 million, primarily driven by the commencement of new projects, namely, Foxleigh, Julius, Dawson South, and Gwalia, alongside the expansion of existing contracts and increased demand within mining support services.
• Bottom-Line Update: Underlying EBITDA increased by 14% to $138.7 million, and reported NPAT slipped to $3.3 million relative to $43.1 million, primarily driven by one-off expenses, GBF acquisition earn-out expense, SaaS costs and amortization of recognized customer contracts on acquisition.
• Financial Position: As of 31 December 2021, the company held a cash balance of $161.2 million relative to $182.1 million as of 30 June 2021. Borrowings increased from $312.4 million on 30 June 2021 to $403.7 million on 31 December 2021. Underlying operating cash flows stood at $96.6 million, relatively unchanged.

H1FY22 Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges

The metals and mining sector is facing significant challenges from the current disruption in the global supply chain amid the Russia-Ukraine geopolitical distress and the shortage in the labour force.

Outlook

FY22 priorities include the complete project ramp-ups and project performance monitoring with cost escalations to deliver expected margins. The order book stands at $5.2 billion with a high secured revenue and earnings level. Additionally, the tender pipeline is valued at $8.7 billion.

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 MAH gave a negative return of ~5.00% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.152 - $0.243. The immediate support and resistance levels for the scrip are $0.175 and $0.220, respectively. 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 mid-single-digit (in percentage terms). Considering the supply chain disruptions and labour shortage, the company might trade at a slight discount to its peers. For valuation, few peers like Perenti Global Ltd (ASX: PRN), Metarock Group Ltd (ASX: MYE), MACA Ltd (ASX: MLD) and others have been considered. Given the decent fundamental outlook, extensive pipeline, current trading levels, and upside indicated by valuation, we give a “Hold” recommendation on the stock at the closing market price of $0.190, down by 2.564%, as of 22 April 2022.

MAH Daily Technical Chart, Data Source: REFINITIV

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 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 a 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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