Regis Resources Limited

RRL Details

Change of Interest: Regis Resources Limited (ASX: RRL) deals in gold mining and currently working on two projects, the Duketon project located in the North-eastern Goldfields of Western Australia; and the McPhillamys project situated in the Central Western region of New South Wales. As per a recent announcement, the company’s director Jim Beyer, has undergone a change of interest in the company and has acquired 37,816 ordinary shares.

Q3FY21 Financial Performance: 

• During the quarter, the company has recorded production of 85,748oz and total revenue of $135.7 million.
• RRL has reported cash flow from operations of $67.2 million in Q3FY21, a decline from $100.1 million in the prior quarter.
• The company’s cash position and bullion were at $202.3 million, a reduction from $17.7 after paying out dividends of $16.8 million and income tax of $19.5 million.
• The Moving Average Lost Time Injury Frequency Rate for 12 months has posted an improvement, reducing by 40% to 1.4 from 2.4 at the end of the prior quarter.
  

Historical Financial Performance (Source: Analysis by Kalkine Group)

Outlook: The management has included Tropicana Gold Mine in the portfolio that has increased mineral resources to 10.4Moz and total ore reserves to 4.8Moz. It has provided FY21 guidance of 355,000 -380,0000oz for an AISC of $1,230 -$1,300 per oz.

Key Risks: The company is exposed to the following risks:

• Liquidity Risk: The company should have sufficient liquidity to meet liabilities and in a stressed condition of operations. Therefore, the company should maintain cash flow to meet operating expenses.
• Market Risk: The company is exposed to foreign currency risk, commodity price, equity prices that could impact the company’s income.

Valuation Methodology: EV/Sales 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 will update on its Q4FY21 results and arrange a conference call to update investors and analyst on 29 July 2021. The stock of RRL is trading below its average 52-weeks' levels of $2.360-$5.956. The stock of RRL gave a positive return of ~3.86% in the past one month and a negative return of ~54.91% in the past one year. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer average EV/Sales (NTM trading multiple), considering the uncertainty over COVID-19 impact and technology advancement risk. For this purpose, we have taken peers such as Northern Star Resources Ltd (ASX: NST), Western Areas Ltd (ASX: WSA), St Barbara Ltd (ASX: SBM), to name a few. Considering the current trading levels and indicative valuation upside, lower debt-to-equity ratio, increase in production, inclusion of Tropicana in its portfolio and a comfortable cash position, we recommend a ‘Buy’ rating on the stock at the current market price of $2.550 as on 22 July 2021, 11:09 AM (GMT+10), Sydney, Eastern Australia.

RRL Daily Technical Chart, Data Source: REFINITIV

Cooper Energy Limited

COE Details

Business Update: Cooper Energy Limited (ASX: COE) engages in oil and gas exploration, production and selling of hydrocarbons to south-east Australia. It produces offshore gas from the Sole gas field. As per a recent announcement, Bass Oil Limited is set to acquire Cooper Energy’s interest in a portfolio of Cooper Basin non-operated for a total cash of $650,000. The acquisition increases Bass’s 2P reserves by 54,000 barrels.

The company has appointed Ms Giselle Collins as a non-executive director, effective by 19 August 2021 whereas Virginia Suttell, Chief Financial Officer has resigned from the company, effective 30 September 2021.

Q4FY21 Financial Performance:

• During the quarter, the company has increased in revenue by 31% to $47.1 million due to sales hike in Sole gas.
• COE’s production has been impacted during the period due to constrained Orbost processing rates and Iona processing interruptions, resulting in decline by 14% to 0.66 MMboe.
• The company has completed 80% of Athena Gas Plant Project and is on budget.
• The quarter ended with a cash balance of $90.9 million and net debt of $127.1 million.
  

Historical Revenue Performance (Source: Analysis by Kalkine Group)

Outlook: The management has given a guidance of the capital expenditure in the lower range of $35 – $40 million, production guidance of ~2.6 MMboe for FY21 and sales volumes guidance of ~3.0 MMboe. The company is planning to commence the Athena Gas Plant in Q2FY22.

Key Risks: The company is exposed to labour availability risk, technology risk, geological risk that directly impact the operations of the company.

Valuation Methodology: EV/Sales 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: As per a recent update, the company has recorded a full year production of 2.6 MMboe in FY21, up by 69% and revenue up by 69% to $131.7 million in FY21. The stock of COE is trading below its average 52-weeks' levels of $0.230-$0.420. The stock of COE gave a negative return of ~41.46% in the past one year and a negative return of ~12.72% in the past three months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount to its peer average EV/Sales (NTM trading multiple), considering the uncertainty over COVID-19 impact, impact on production and subdued ROE performance. For this purpose, we have taken peers such as Z Energy Ltd (ASX: ZEL), Worley Ltd (ASX: WOR), Australis Oil & Gas Ltd (ASX: ATS), to name a few. Considering the current trading levels, indicative upside in valuation, decent cash position, increase in revenue, proposed commencement of Athena Gas Plant and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.240, as on 22 July 2021.

COE 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 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 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 the 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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