Deterra Royalties Limited 

DRR Details

Change in Director Interest: Deterra Royalties Limited (ASX: DRR) operates in a royalty business model that involves managing and investing a portfolio of royalties across bulk commodities, base metals, and battery metals in Australia. Recently, the company's directors Jennifer Seabrook and Joanne Warner have acquired 25,000 (direct) and 20,000 (Super Fund Acquisition) ordinary shares, respectively.

FY21 Financial Performance:

• The company reported strong revenue growth to $145.2 million in FY21, supported by the robust performance of Deterra Royalties, which was at $115.9 million.
• The demerger of Deterra Royalties Limited and Iluka Resources has brought lower risk, higher-margin ways to invest and strong visibility on earnings.
• The MAC South Flank has achieved its first ore – growth of 80 million wet metric tonnes per annum.
• Nevertheless, the company has posted a net profit of $94.3 million and an underlying EBITDA of $135.5 million in FY21.
• The cash position of the company stood at $24.2 million as of 30 June 2021.

Trend in Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Foreign Currency Risk- The company’s operations are exposed to the global market, due to which the company could face the foreign currency risk.
• Climatic Risk- Material production could be disrupted due to climatic risks like natural disasters, catastrophic infrastructure, or operations incidents that directly impact the company's operations.

Outlook:

• The management is expecting low-risk exposure, low-cost iron ore mining complex that could generate ~ 2.4 times of its volume in the core asset of Mining Area C Royalty.
• The company aims to invest in value-accretive investments that can generate a return in excess of the asset-specific cost of capital.
• The key driver for a company’s growth is disciplined capital allocation and diversification. It also focused on low cost, scalable corporate structure, and high earnings margins.
• The company has also targeted net-zero operational Greenhouse Gas footprint by the end of FY22, committing to a sustainable shareholder’s return.

Valuation Methodology: EV/EBITDA 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 company has declared a fully franked dividend at a price of 11.520 cents per share with a record date of 3 September 2021 and a payment date of 22 September 2021. The stock of DRR is trading below its average 52-weeks' levels of $3.740-$5.350. The stock of DRR gave a negative return of ~14.96% in the past one month and a negative return of ~20.88% in the past nine months. The stock has been valued using EV/EBITDA multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers' average, considering the expected economic recovery, rise in steel demand and higher gross margin. For the purpose of valuation, peers such as BHP Group Ltd (ASX: BHP), Iluka Resources Ltd (ASX: ILU), Pilbara Minerals Ltd (ASX: PLS) have been considered. Considering the current trading levels, indicative upside in valuation, robust financial performance, disciplined investment, successful demerger and optimistic outlook, we recommend a 'Buy' rating on the stock at the current market price of $3.750, down by ~2.850% as on 17 September 2021.

DRR 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 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.

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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