Worley Limited

WOR Details

New Services Agreement: Worley Limited (ASX: WOR) offers professional project and asset services to the chemicals, energy, and resources customers and aims to help them in reducing their carbon emissions. It operates in the US, the Middle East and Africa (EMEA), Europe, and Asia-Pacific (APAC). On 8 November 2021, WOR secured a services contract from OLCV (Oxy Low Carbon Ventures), a subsidiary of Occidental, to provide early front-end engineering and design (FEED) services. The pre-FEED services will be provided for the construction of a DAC (direct air capture) -to-fuels facility in Canada being developed by OLCV and Squamish Huron Clean Energy Corporation (Huron).

After providing pre-FEED services, WOR expects to enter the FEED and engineering, procurement, fabrication, and construction phase for the facility.

Contracts Secured in October 2021:

• On 19 October 2021, WOR obtained a design and procurement services contract to aid in the construction of a low-carbon fuels facility at the Shell Energy and Chemicals Park Rotterdam in The Netherlands.
• Recently, WOR secured a contract to provide pre-FEED, FEED, and project management services for a residue upgrade project at Saudi Aramco’s Ras Tanura refinery.

 Chairman’s AGM Address & FY21 Highlights:

• WOR completed the acquisition of ECR acquisition and realised cost synergies ~$190 million in annualized savings by April 2021. These cost savings exceed the ~$130 million savings identified at the time of the acquisition.
• The company announced ~25 cents per share unfranked final dividend. For 1HFY21, WOR had paid ~25 cps, taking the FY21 dividend to ~50 cps.
• WOR has a robust balance sheet with gearing at ~21.7% as of 30 June 2021 and leverage ~2.0 times within the company’s target range. The company has an extended long-term debt maturity profile with the raise of ~500 million Euro Sustainability-Linked bond as per a Euro Medium Term Note program.
• The 2HFY21 underlying EBITA stood at ~$261 million, up by ~26% on 1HFY21, due to rate improvements and continued savings from its cost-out programs.

Aggregate Revenue & Net Income Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faced subdued economic activity due to COVID-19 impact on its customers and demand in FY21. It faces forex headwinds due to global operations.

Outlook:

• The company witnessed business stabilization in the 2HFY21 due to increase in backlog and factored sales pipeline.
• WOR believes it is well placed to benefit from the market recovery because of robust cash and continuing cost synergies realisation from the programs. The company is on track to generate targeted savings of ~$350 million annualized savings by 30 June 2022 due to the ongoing operational savings program.
• The company is gaining momentum from its sustainability pivot and committed to ~50% reduction in carbon emissions by 2025 as per its Sustainability-Linked bond. It also plans to reduce lower emissions in its value chain.
• Several strategic project contracts are anticipated to move into advanced phases in 2HFY21.
• WOR aims at strategic transformation by investing in sustainability, digitalisation, and process technology. It expects an improved FY22 though different rate of progress expected from different sectors and regions.
• The company expects that customers will continue to demonstrate a targeted approach to capital expenditure for 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 stock of WOR gave a negative return of ~11.34% in the past three months and a negative return of ~13.15% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $8.920 - $14.010. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ median EV/Sales multiple, considering its impacted financial results of FY21, slight increase in the leverage, continuing forex risk and COVID-19 impact on customers. For this purpose of valuation, few peers like Monadelphous Group Limited (ASX: MND), Ampol Limited (ASX: AMP), CIMIC Group Limited (ASX: CIM), and others have been considered. Considering the current trading levels, award of new services contracts, cost savings from the ECR acquisition and cost-out programs, improved result in 2HFY21, expected progress across sectors and regions, valuation, we give a ‘Buy’ rating on the stock at the current market price of $9.770, as of 18 November 2021, 2:50 PM (GMT+10), Sydney, Eastern Australia.

WOR Daily Technical Chart, Data Source: REFINITIV  

Regis Resources Limited

RRL Details

 Shareholding Change: Regis Resources Limited (ASX: RRL) is involved in the gold exploration and production projects in New South Wales and Western Australia. RRL operates Duketon North Operations, Duketon South Operations, and Tropicana JV, and the McPhillamys Gold Project in the Central Western region of New South Wales. On 12 November 2021, RRL cancelled ~410 shares of Director, Jim Beyer after which he held ~179,450 shares in RRL.

On 5 November 2021, Vanguard Group ceased to be a substantial shareholder and now holds 4.734% in RRL.

Q1FY22 (30 September 2021) Highlights:

• The revenue from gold sales for Q1FY22 stood at ~$179 million at an average realised price of $2,178/oz after factoring for hedging.
• The gold production amounted to ~101,989oz at an All-In Sustaining Costs (AISC) of $1,521/oz for Q1FY22. The production was a mix from the Duketon operations and 30% Tropicana share of ~28,914oz.
• The gold production from Duketon operations fell to ~73,074oz in Q1FY22 versus the June quarter production of 96,829oz.
• The operating cash flows reported stood at ~$92.5 million from Duketon and Tropicana operations, down from ~$108.5 million in Q4FY21 due to lower quarterly production.
• RRL held ~$208 million cash and bullion in Q1FY22, down from ~$269 million in Q4FY21.

Sales Revenue & Net Income Trend; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 related issues such as high labour turnover and growing competition for replacement personnel. It faces gold price and forex currency changes which may disrupt the business financials.

Outlook:

• RRL maintains FY22 guidance of 460-515koz for gold production at an estimated AISC of $1,290-1,365/oz. The C1 cash cost is estimated between $1,070-1,135/oz, with growth capital expenditure in the range of ~$155 - ~165 million and exploration expenditure of ~$43 million in FY22.
• For the McPhillamys gold project, RRL’s team is actively engaging with the multiple government departments and awaiting approval for the mining licence.
• The ongoing development on the Garden Well South underground mine project is expected to add strength to RRL’s production profile. RRL expects to reach the first ore before CY21-end.

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 RRL gave a negative return of ~13.06% in the past three months and a negative return of ~17.76% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.860 - $3.893. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering its increase in debt-to-equity ratio in FY21, lower production from Duketon operations in Q1FY22, and ongoing COVID-19 impact. For this purpose of valuation, few peers like Resolute Mining Limited (ASX: RSG), Northern Star Resources Limited (ASX: NST), OceanaGold Corp (ASX: OGC) have been considered. Considering the current trading levels, positive operating cash flows, expected increase in FY22 production to ~460-515koz from ~373koz in FY21, expected addition from the Garden Well South project, valuation, we give a ‘Buy’ rating on the stock at the current market price of $2.105, as of 18 November 2021, 10:50 AM (GMT+10), Sydney, Eastern Australia.

RRL Daily Technical Chart, Data Source: REFINITIV

Jupiter Mines Limited

JMS Details

Director’s Shareholding and Board Updates: Jupiter Mines Limited (ASX: JMS) owns ~49.9% interest in Tshipi e Ntle Manganese Mining Limited (Tshipi), the operator of the Tshipi mine in South Africa and generates revenue from the sale of manganese ore. On 3 November 2021, Director, Peter North held 697,000 shares via an on-market purchase of 640K shares.

On 1 November 2021, JMS reported that Mr. Priyank Thapliyal is no longer the CEO of the company. Meanwhile, Scott Winter and Peter North are currently acting as the CEO and Chair of JMS, respectively.

Key Takeaways from 1HFY22:

• The profit from operations increased ~$14.07 million in 1HFY22 compared to ~$1.33 million in 1HFY21 due to a significant increase in other income.
• The NPAT declined by 7% YoY from ~$29.79 million in 1HFY21 to ~$27.56 million in 1HFY22.
• The Board paid ~$0.005 per share unfranked interim dividend on 9 November 2021.
• During 1HFY22, JMS sold off its Central Yilgarn Iron Project assets into Juno Mineral Limited (Juno). Juno was demerged through an in-specie distribution of its shareholding to JMS Shareholders. JMS generated a profit of ~$12.62 million from the demerger of Juno.
• JMS’ South African marketing branch reported sales of ~841,254 dmt manganese in 1HFY22 versus ~559,843 dmt in 1HFY21.
• JMS reported a lower net profit of ~$15.69 million from its investment in the Tshipi mine in 1HFY22 compared to ~$36.06 million in 1HFY21.
• JMS held ~$22.91 million cash and cash equivalents and nil debt as of 31 August 2021.

Gross Profit Trend from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces fluctuations in the prices, production of manganese, mining challenges due to operator issues, and weather disruptions. Regulatory delays and supply chain challenges also pose risks to the smooth functioning of the business.

Outlook:

• The Board has initiated a search for the new Chair and CEO and identified candidates for the positions.
• Tshipi demonstrated a QoQ improvement in terms of LTIFR (Lost Time Injury Frequency Rate) and reported no Lost Time injuries (LTI) in Q2FY22. JMS intends to continue making improvement interventions to maintain this performance.

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 stock of JMS gave a negative return of ~22.22% in the past three months and a negative return of ~28.81% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.202 - $0.375. The stock has been valued using the P/E multiple- based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average P/E multiple, considering its decline in financial results in 1HFY22, a decline in the Tshipi’s overall shipping volumes on a YTD22 basis, mining challenges faced in 1HFY22. For this purpose of valuation, few peers like BHP Group Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), Mineral Resources Limited (ASX: MIN), and others have been considered. Considering the current trading levels, increase in revenue, manganese sales by the branch in South Africa, nil debt levels, and valuation, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.210, down by ~2.326%, as of 18 November 2021.

JMS 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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