Perenti Global Limited

PRN Details

H1FY22 Financial Update: Perenti Global Limited (ASX: PRN) is a diversified global mining services company that provides surface and underground mining services. On 9 February 2022, PRN announced that idoba, PRN’s technology-driven business, is progressing under a Memorandum of Understanding (MoU) with Sumitomo Corporation to develop digital mining products. Moreover, PRN announced the acquisition of Orelogy and Atomorphis, two complementary businesses.

• Improved Income Overview: In H1FY22, total revenues increased by 17.7% as growth projects ramped up. EBITDA fell broadly in line with H1FY21 while EBITDA margin shrink to 16.9% by 288bps due to Australia’s labour supply constraints and inclusion of idoba.
• Cash Flow Position: The company embarked upon a cash conversion of 94% with a continued focus on working capital management. Asset sale proceeds stood at $36.2 million, and growth capital stood at $122.2 million. Net cash flows stood at -$8.9 million.
• Liquidity and Leverage Overview: Net leverage stood at 1.3x with gearing of 28% and EBITDA interest coverage of 8.1x. Higher cash conversion, effective working capital management, and decent timing of forecast capex, resulted in net leverage dropped to 1.3x from a forecast of 1.5x to 1.6x. The undrawn revolving facility stood at $280.8 million, and the cash position stood at $258.9 million.

H1FY22 Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges

The Australian underground labour and supply chain constraints have substantially affected daily business operations amid the recent crunch in labour supply and increased freight prices. The business is susceptible to immense competition from technological aspects.

Outlook

PRN updated FY22 guidance with an estimate of $2.2 billion to $2.4 billion in revenues and $165 million to $185 million in EBITA. The underground delivery margins are expected to expand across projects like Agnew, Dugald River, and Zone 5.

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 ~38.600% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.625 - $1.345. 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 low double-digit (in percentage terms). Considering the uncertainties surrounding the labour supply constraints and high potential competition, the company might trade at some discount to its peers, For valuation, few peers like Macmahon Holdings Ltd (ASX: MAH), Mount Gibson Iron Ltd (ASX: MGX), BlueScope Steel Ltd (ASX: BSL) and others have been considered. Given the decent H1FY22 performance, raised revenue guidance, high growth potential in Australia’s giant metals and mining industry, current trading levels, upside indicated by valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.745, as of 23 February 2022, 10:50 (GMT+10), Sydney, Eastern Australia.

PRN 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 from 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 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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