This report is an updated version of the report published on the 20 May 2024 at 3:55 PM AEST.
Nickel Industries Ltd (ASX: NIC)
NIC is an ASX listed nickel ore mining and nickel pig iron production company with operations in Singapore and Indonesia. It holds 80% stake in the Hengjaya Mine, Ranger Nickel project and in the Angel Nickel project.
Recommendation Rationale – SELL at AUD 1.070
- Financial Performance: The company’s total nickel production from RKEF operations decreased by 7.6% to 31,840 tonnes in 1QFY24 compared to 34,450 tonnes in 4QFY23. NIC’s EBITDA from RKEF operations decreased by 43.3% to USD 48.2mn in 1QFY24 from USD 85.1mn in 4QFY23.
- Outlook: The Hengjaya Mine was granted the RKAB license approval in 2024. This license is valid for three years and can be amended during this period to increase production. The mine is getting ready to supply limonite ore to its majority owned ENC Project.
- Emerging Risks: Materials companies could encompass potential losses due to adverse market conditions, such as commodity price changes, geopolitical events, technology changes, and macroeconomics changes, among others.
- Overvalued Multiples: On a forward 12-month basis, key valuation multiples (EV/Sales, EV/EBITDA, Price/Earning, and Price/Cash Flow) are higher than the median of Basic Materials Industry.
NIC Daily Chart
Valuation Methodology: Price/Earnings Approach (FY December’24E) (Illustrative)
Considering the lower EBITDA from RKEF operations in 1QFY24, reduction in RKEF nickel metal production in 1QFY24, intense competition in market, and regulatory barriers, the company might trade at a slight discount to its peers. For valuation, few peers such as Imdex Ltd (ASX: IMD), South32 Ltd (ASX: S32), IGO Ltd (ASX: IGO), and others have been considered. Given its current trading levels, recent rally in the share price, and risks associated, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 1.070, at 3:40 PM AEST, as of 20 May 2024.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.
Note 1: Past performance is neither an indicator nor a guarantee of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 20 May 2024. The reference data in this report has been partly sourced from REFINITIV.
Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.
Note 4: Dividend Yield may vary as per the stock price movement.
Technical Indicators Defined: -
Support: A level at which 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 at which 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: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.