Vulcan Energy Resources Limited (ASX: VUL)

VUL is an energy metals exploration company involved in development of a combination of geothermal energy and lithium extraction in Germany. As on 9^th December 2021, the market capitalisation of the company stood at AUD 1.20 billion.

Financial and Operational Updates: As per the 8 December 2021 announcement, VUL signed an offtake agreement with The Volkswagen Group to supply ~34k-~42k tonnes of battery grade lithium hydroxide. As per the 29 November 2021 announcement, it signed a 5-year offtake agreement with Stellantis to supply ~81k-~99k tonnes of battery grade lithium hydroxide starting from 2026. Besides, it also signed an offtake agreement with Renault to supply ~26k-~32k metric tonnes of battery grade lithium chemicals.

On 19^th November VUL agreed to acquire two electric drill rigs for its Zero Carbon Lithium ^TM Project. On 12^th November it updated that DFS (Definitive Feasibility Study) for its Lithium Processing Division is on track for mid-2022, where the laboratory will be opened in January 2022 in Karlsruhe-Durlach. It also signed an agreement with Rhein Petroleum GmbH to buy 3D seismic and drilling data.

As per the Quarterly Cashflow Report released on 29^th October 2021, its receipts from customers were reported as € 143k for 1QFY22 versus nil in 4QFY21. It closed its quarter with cash and cash equivalents at € 187.24 million vs € 72.49 million in 4QFY21.

Technical Analysis: VUL’s prices have given the breakout of a horizontal trendline resistance level with a gap-up movement, indicating a positive stance. On the daily chart, the prices are trading above the 21-period SMA and supporting the positive stance. The leading indicator RSI (14-period) has recovered from the lower levels and currently trading above mid-point at ~51.13 levels, indicating the possibility of an uptrend. The immediate support level is placed at AUD 9.90, while the resistance level is at AUD 12.36.

Investors can consider exiting from the stock if the Resistance levels mentioned as per the technical analysis have been achieved and are subject to the factors discussed above.

Valuation Methodology: P/B Multiple Based Relative Valuation (Illustrative)

*% 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: VUL has provided ~+102.51% of return in past nine months and is trading above the average 52-week price level band of AUD 2.10 and AUD 16.65. The stock has been valued using price-to-book value multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). For the purpose of valuation, peers like Core Lithium Ltd (ASX: CXO), Piedmont Lithium Inc (ASX: PLL), Pilbara Minerals Ltd (ASX: PLL), and others have been considered. The company can trade at a slight discount to its peers, considering its net losses for FY21 and negative ROE. After considering its updates on its multiple offtake agreements with various automobile players, upside potential as indicated by the valuation, the investors with a high-risk appetite can consider it as a ‘Speculative Buy’ along with incorporating the support and resistance as one of the tools while analysing the investment opportunity. The stock was analysed as per the current market price of AUD 10.93 per share, 10:49 AM (GMT+10), Sydney, Eastern Australia, as of 9^th December 2021. However, the risk levels are extremely high in view of the actual execution and abiding of the agreements signed.

Daily Technical Chart – VUL

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 for 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 the uptrend may take a pause due to profit booking or selling interest. 

The Green colour line reflects the 21-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 21-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Blue colour line reflects the 50-period moving average. SMA helps to identify existing price trend. If the prices are trading above the 50-period, then it shows prices are currently trading in a bullish trend, (Vice – Versa).

The Yellow colour line represents the Trendline.

The Purple colour line in the chart’s lower segment reflects the Relative Strength Index (14-Period) which indicates price momentum and signals momentum in trend. A reading of 70 or above suggests overbought status while a reading of 30 or below suggests an oversold status.

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