Mirvac Group

MGR Details

An Update on 3QFY21: Mirvac Group (ASX: MGR) is a diversified property company with an integrated development and asset management capability in Australia. The company's segments include Office & Industrial, Retail, Residential, and Corporate. The company has posted a robust sale across its residential property segment. The company has posted an increase of 98% YoY to 897 home and apartment units in 3QFY21. Residential customer enquiries have also gone up by 68% YoY. The company have also witnessed an improvement in rent collection rates in Q3FY21 with 95% of rent collected financial year to date as compared with 93% in 1H21. The company has posted a strong balance sheet with diversified capital sources, supporting its future growth. 

Quarterly Residential Sales (Source: Company Reports)

1HFY21 Financial Highlights: The company has registered a decline in its revenue to $998mn in 1HFY21 as compared with $1,253mn in 1HFY20 on the back of negative impacts from Covid-19. The company has also seen a decline in its profits to $396mn in 1HFY21 as compared with $613mn in 1HFY20. The company has seen a decline in cash and cash equivalents situation to $245mn as on 31 December 2020 as compared with 324mn as on 30 June 2020. 

Key Risks: The company is exposed to liquidity risk as there is always a risk for the company to get failed in meeting its financial obligations as and when they are due to pay. Any such failure to repay its debt may lead the company to discontinue its business. The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in financial losses for the company.

Outlook: The company has revised its earnings estimates for FY21. MGR has upgraded its earnings per security to at least 13.7cpss from 13.1-13.5cpss on the back of JobKeeper payments received in FY21 and delay of the sale of 50% of the locomotive workshops to take place in early 1Q22. Similarly, distribution guidance has also been upgraded to 9.9cpss from an earlier estimate in a range of 9.6-9.8cps, indicating an improved outlook for the business.

Valuation Methodology: EV/EBITDA based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, MGR has increased by ~9.09% and by ~8.64% in the last three months. The current market capitalisation of MGR stands at ~$10.39bn as of 29 April 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$2.010-~$2.840. On the technical analysis front, the stock has a support level of ~$2.606 and a resistance of ~$2.698. We have valued the stock using an EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer median, considering a decline in profits and weak consumer sentiments due to existence of Covid-19 situation. For this purpose, we have taken peers Abacus Property Group (ASX: ABP), Ingenia Communities Group (ASX: INA), Dexus (ASX: DXS). Considering the increase in rent collection in Q3FY21, upgrade in earnings guidance and dividend guidance, current trading level and valuation, we recommend a “Hold” rating on the stock at the current market price of $2.64, as on 29 April 2021.

MGR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Fortescue Metals Group Ltd

FMG Details

Quarterly Production Update: Fortescue Metals Group Ltd (ASX: FMG) is engaged in the exploration, development, production, processing, and sale of iron ore. Fortescue owns and operates a fully integrated infrastructure and supply chain. The company has registered an increase of 28% YoY in the production of 53.6m wmt mined ore in Q3FY21 against 41.9m wmt mined ore in Q3FY20. The company has posted year to date shipments of 132.9mt, an increase of 2% as compared with FY20. FMG has posted an increase of 17% Q-o-Q to US$143/dmt in its average revenue in Q3FY21. The company has posted US$1.0bn of net debt at the end of Q3FY21 after dividend payments and capital expenditure.

Quarterly Production (Source: Company Reports) 

1HFY21 Financial Highlights: The company has registered an increase in its revenue to US$9,335mn in 1HFY21 as compared with US$6,485mn in 1HFY20. Similarly, the company has posted an increase in NPAT to US$4,084mn in 1HFY21 as compared with US$2,464mn in 1HFY20 on the back of higher price realisation of US$114.02/dmt. The company has registered a decline in borrowings to US$3,203mn as on 31 December 2020 as compared with US$4,234mn as on 30 June 2020. The company has posted a decline in its cash and cash equivalent position to US$3,974mn in 1HFY21 as compared with US$4,855mn in 1HFY20.

Key Risks: The company requires regulatory approvals to carry out its business efficiently. Any delay in regulatory approval may result in financial losses for the company. The company is engaged in exploration activities. Thus, any adverse climatic conditions may result in the discontinuation of business for an indefinite period.

Outlook: The company has provided its FY21 guidance. As per the company’s guidance, Iron Ore shipments are expected to be in a range of 178-182mt in FY21. C1 costs are likely to be in a range of US$13.5 to US$14.0/wmt. The company has revised its capital expenditure estimates to US$3.5-US$3.7bn. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, FMG has increased by ~12.33% and decreased by ~0.65% in the last three months. The current market capitalisation of FMG stands at ~$69.64bn as of 29 April 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$10.61-~$26.40. On the technical analysis front, the stock has a support level of ~$21.82 and a resistance of ~$23.13. 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 upside (in % terms). We believe that the company can trade at a slight discount as compared to its peer average, considering a decline in its cash and cash equivalent position and a modest decline in ore processed. For this purpose, we have taken peers Northern Star Resources Ltd (ASX: NST), Strandline Resources Ltd (ASX: STA), Newcrest Mining Ltd (ASX: NCM). Considering the higher production in Q3FY21, increase in price realisation, decline in borrowings, decent outlook, current trading level, and valuation, we recommend a “Hold” rating on the stock at the current market price of $22.58, down by ~0.177% as on 29 April 2021.

FMG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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.

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