Perenti Global Limited

PRN Details

Contract Finalised for the Savannah Nickel Project: Perenti Global Limited (ASX: PRN) is engaged in surface mining, underground mining, and mining support services. PRN has recently finalized a contract for Savannah Nickel Project. PRN’s subsidiary, Barminco (Underground Miner) has signed a contract with Panoramic Resources Limited for the production and development works at their Savannah Nickel Project in Western Australia. The contract is signed for four years, valued at ~$280mn. The company was expecting mining to commence in August 2021, but the company has commenced operations earlier than expected due to mining equipment and personnel in place ahead of schedule. 

Notification on Initial Substantial Holder: The company has announced on 6 July 2021 regarding an initial substantial holder. Allan Gray Australia Pty Ltd and its related bodies have become a substantial holder in the company on 2 July 2021 by holding 5.21% voting power.  

1HFY21 Financial Highlights: 

Increase in Revenue – PRN has reported a modest increase in revenue in 1HFY21 against 1HFY20 due to mixed results across the business. 

Incurred a Loss – PRN has incurred a loss in 1HFY21 mainly due to contraction of the surface mining Africa business, currency movements and subdued performance of the investments industry sector groups.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company has witnessed an impact of Covid-19 on its surface mining business and contraction in the labour force. Moreover, the company is exposed to adverse foreign exchange prices, which may impact the financials of the company.  

Outlook: The company expects ore processing to begin in November 2021. Moreover, the company expects first concentrate shipment from Savannah in December 2021. The company expects a strong outlook for the resources sector in 2021. PRN has an order book of $5.5bn.

Valuation Methodology: EV/Sales based Relative Valuation Method (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 return of ~-33.62% in the last three months and a return of ~-46.42% in the last six months. The current market capitalisation of PRN stands at ~$517.65mn as of 9 July 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$0.625-~$1.555. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in % terms) upside. We believe that the company can trade at a slight discount as compared to its peer average, considering incurring a loss in 1HFY21 and mixed performance across businesses. For this purpose, we have taken peers Emeco Holdings Ltd (ASX: EHL), MACA Ltd (ASX: MLD), Macmahon Holdings Ltd (ASX: MAH). Considering commencement of mining at Savannah project, an increase in revenue in 1HFY21, current trading levels, and valuation, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.75, (as on July 9, 2021, 10.57 AM (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 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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