Resource Development Group Limited

RDG Details

Business Update: Resource Development Group Limited (ASX: RDG) engages in contracting, remedial, and construction services to the resource, infrastructure, energy, government, utilities, and defence sectors in Australia. Recently, the company has strategically acquired the Lucky Bay Garnet Project. It estimated 29 years of ore reserves at 202Mt @ 5.4%HM with an average garnet grade of 86% in HM. The project has a robust NPV of almost half a billion dollars and an IRR of 48%, which creates value for the company.

FY21 Financial Performance:

• The company recorded robust revenue growth of 220.6% to $67.12 million in FY21, compared to $20.93 million.
• The company received receipts from the customer of $86.04 million in FY21 against $31.06 million in FY21
• The profits narrowed by 23.7% to $1.12 million in FY21 against $1.47 million in FY20 impacted due to the acquisition of two projects during the year FY21.
• The strong cash position of the company stood at $23.89 million as of 30 June 2021, up from $1071 million as on 30 June 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Liquidity Risk- The company requires sufficient liquidity to meet the financial obligation, operational activity and mitigate the working capital risks.
• Impact of COVID-19 pandemic- The company has a significant effect on customers offering, supply chain, staffing that impacted the company’s financial and still, the uncertainty prevails.

Outlook:

• The company focuses on a strategic investment opportunity with the vision of long-term revenue streams with an acceptable return on capital.
• Moreover, the company remains on track to identify a third project that meets its return-on-investment requirements and generate higher profit margins.
• The company excepts a capital expenditure of $60 million during Q1FY22, after the commencement of mining and processing at Lucky Bay Garnet project.

Stock Recommendation: The stock of RDG is trading above its average 52-weeks' levels of $0.035-$0.074. The stock of RDG gave a positive return of ~19.04% in the past one week and a negative return of ~7.04% in the past one month. On a technical analysis front, the stock of RDG has a support level of ~$0.040 and a resistance level of ~$0.062. On a TTM basis, the stock of RDG is trading at a Price/CF multiple of 9.3x, higher than the industry average (Construction & Engineering) of 1.4x. Considering the current trading levels and valuation on a TTM basis, recent rally in the stock price, uncertainty led by COVID-19 pandemic and the key risks associated with the business, we suggest  investors to book profit and give a 'Sell' rating on the stock at the current market price of $0.058, as on 21 September 2021, 10:54 PM (GMT+10), Sydney, Eastern Australia.

RDG Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart shows RSI (14-period)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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