Panoramic Resources Limited

PAN Details

Sale of Thunder Bay North Project: Panoramic Resources Limited (ASX: PAN) operates the flagship Savannah nickel-copper-cobalt project in the East Kimberley region of Western Australia. On 11 May 2022, PAN received the deferred consideration instalment of ~$1.65 million from the divestment of the Thunder Bay North PGM Project in Canada. PAN now expects to receive ~$1.5 million final deferred instalment in May 2023.

Highlights for Q3FY22 (ended 31 March 2022):

• PAN reported concentrate production of ~17,498 dmt (comprising ~1,256 tonnes of nickel, ~802 tonnes copper and ~81 tonnes cobalt), up by ~57% Q-o-Q in Q3FY22.
• Total site expenditure (cash basis) amounted to ~$41.1 million due to operational and capex, concentrate shipments, royalties, exploration activities, financing charges, etc., incurred in Q3FY22.
• PAN held ~ $13.7 million as of 31 March 2022 (excluding the third shipment payment of ~$29.2 million received in April) compared to ~$11.2 million as of 31 December 2021.

Processing and Concentrate Production Statistics; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of new targets for nickel discovery, reserve, and resource expansion, moving the Savannah to a full commercialisation scale, and workforce availability issues. 

Outlook:

• PAN reported encouraging drilling results from the Savannah North resource exploration in Q3FY22 to aid the upgrade of Inferred Resources in the mine plan. It plans to open a second mining front at Savannah North in FY23.
• PAN continued with the shipments and pre-commercial production at the Savannah project in Q3FY22. It plans to expedite the mining and processing operations to complete commercial levels.

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 PAN gave a negative return of ~31.42% in the past month and a negative return of ~7.69% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.135 - $0.380. The stock has been valued using the P/E based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median P/E multiple, considering the uncertainty around the pre-commercialisation production phase, ongoing resource expansion drilling, and COVID-19 led disruptions. For this purpose of valuation, a few peers like IGO Ltd (ASX: IGO), Mincor Resources NL (ASX: MIN), Poseidon Nickel Ltd (ASX: POS), and others have been considered. Considering the current trading levels, improved concentrate production and processing in Q3FY22, continuous resource expansion drilling, intersection reported at Savannah North Resource, positive market dynamics, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.240, down by ~5.882%, as of 12 May 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.

PAN Daily Technical Chart, Data Source: REFINITIV  

Perenti Global Limited

PRN Details

Portfolio Rationalisation & Other Material Updates: Perenti Global Limited (ASX: PRN) is a mining services firm offering surface and underground mining solutions.

• On 6 May 2022, Mitsubishi UFJ Financial Group, Inc and Mitsubishi UFJ Financial Group, Inc ceased to be substantial shareholders in PRN.
• PRN recently divested its ~100% stake in Chrysos Corporation Limited (Chrysos) via an IPO at ~$6.50 per share generating ~$46.3 million of cash inflow before costs and fees.
• PRN sold off its subsidiary, Well Control Solutions, to a privately owned Brisbane-based buyer for ~$2.6 million. Both divestments will not affect the FY22 earnings.
• The company’s rationalisation and portfolio management activities have garnered ~$134.7 million (excluding transaction costs) cash in FY22.

Financial Results of 1HFY22 (31 December 2021):

• The company posted a stable underlying EBITDA of ~$201.8 million in 1HFY22, consistent with ~$200.9 million in 1HFY21.
• PRN has ~$4.3 billion of contracted work in hand and ~$1.4 billion of contract extensions opportunities (as of 31 December 2021) across Australia, Africa, and North America.

Statutory Results of 1HFY21 Vs. 1HFY22; (Analysis by Kalkine Group)

Key Risks: PRN faces the risk of compressed EBITDA margins as it undertakes growth projects, portfolio rebalancing, COVID-19 led labour supply constraints, and inflationary cost pressures.

Outlook:

• PRN is working on a process to refresh its 2025 strategy for improved capital allocation, review of its assets & business.
• PRN now expects revenue between ~$2.2 - ~$2.4 billion in FY22 (versus ~$2.0 - ~$2.2 billion stated earlier). EBIT guidance is confirmed between ~$165 - ~$185 million due to the expected continued impact of COVID-19 on margins 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 stock of PRN gave a negative return of ~20.12% in the past three months. The stock is currently trading near its 52-weeks’ low level of $0.625. 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 a slight discount than its peers’ average EV/Sales multiple, considering its high debt-to-equity ratio, strain on EBITDA margins, and continuing labour supply constraints. For this purpose of valuation, a few peers like NRW Holdings Ltd (ASX: NWH), Macmahon Holdings Ltd (ASX: MAH), DDH1 Ltd (ASX: DDH) have been considered. Considering the current trading levels, growth in underlying revenue, contracted work in hand, upgraded revenue guidance, plans for a refreshed strategy, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.655, down by ~2.962%, as of 12 May 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.

PRN 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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