Pilbara Minerals Limited

PLS Details

Signing of Share Sale Agreement: Pilbara Minerals Limited (ASX: PLS) is involved in the exploration of lithium and tantalum. The market capitalisation of the company stood at ~$1.67 billion as on 2^nd December 2020. Recently, the company has reached a Share Sale Agreement with Altura Mining Limited and Richard Tucker and John Bumbak for the acquisition of Altura Lithium Operations Pty Ltd for the consideration of US$175 million. The acquisition would be financed via a combination of a fully committed A$240 million equity raising and existing cash reserves. The completion of the acquisition required approval of the DOCA Proposal at a meeting of ALO creditors during December 2020. After receiving the approval of the DOCA Proposal, PLS intends to complete a A$119 million cornerstone placement to AustralianSuper Pty Ltd and it plans to launch a A$121 million accelerated non-renounceable entitlement offer.

September 2020 Quarter Highlights: During September 2020 quarter, the company recorded spodumene concentrate production of 62,404 dry metric tonnes (dmt) and shipped 43,630 dmt of spodumene concentrate. In addition, the company reported Tantalite concentrate sales of 25,222 lbs for the same quarter. During the quarter, the company completed the drawdown of the Finance Facility and used the proceeds to redeem the outstanding balance owed under the US$100M senior secured Nordic Bond. As of 30 September 2020, the company had a cash balance of $85.7 million.

Quarterly spodumene concentrate shipments (Source: Company Reports)

Outlook: The company is committed to align the production with customer demand with a target of achieving annual production of ~330,000 dmt 6% spodumene concentrate in FY21. Further, the company is focused on progressing incremental expansion subject to customer demand and pricing outcomes. For December 2020 quarter, the company expects its sales to be in the range of 55,000 to 70,000 dmt of spodumene concentrate.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last one and three-months period, the stock of PLS has provided a return of 83.7% and 107.04%. The stock is currently inclined towards its 52-week high level of $0.770. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with correction of high single-digit (in percentage terms). For the purpose, we have taken peers such as Galaxy Resources Ltd (ASX: GXY), Lynas Corporation Ltd (ASX: LYC) and Orocobre Ltd (ASX: ORE), etc. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction going forward. On a technical analysis front, the stock has a support level of ~$0.3086 and a resistance level of ~$0.7728. Considering the decent returns in the past few months, current trading levels, RSI levels, and valuation, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $0.730 per share, down by 2.667% on 2^nd December 2020.

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

Harris Technology Group Limited

HT8 Details

Decent Growth in Q1 FY21 Topline and Bottom Line: Harris Technology Group Limited (ASX: HT8) is involved in technology distribution and online retailing. The market capitalisation of the company stood at ~$52.27 million as on 2^nd December 2020. During the quarter ended 30^th September 2020 (Q1 FY21), HT8 witnessed a record revenue of $9.8 million, indicating a rise of 44% over June 2020 quarter. Net profit for the same period amounted to $835,425 as compared to $703,171 in June 2020 quarter. Over the quarter, the company undertook a private placement and SPP of $4.9 million for expansion purpose. The company closed September 2020 quarter with the cash and cash equivalents of ~$3.3 million.

Revenue Growth (Source: Company Reports)

Outlook: The company is agile and would continue to capitalise on future growth areas as they arise with limited to no additional cost. Looking ahead, the company expects supplier relationships to be further enhanced.

Stock Recommendation: The stock of HT8 has moved up by 50% and 650% in the last three and six months, respectively. The stock is currently trading towards its 52-week high level of $0.225. In addition, the stock is trading at premium P/E of 31.3x as compared to the industry average (Software & IT Services) of 2.0x on TTM basis. We have considered 14-day RSI and it was observed that the stock is currently in the overbought zone and therefore the stock may witness some correction in coming times. On a technical analysis front, the stock has a support level of ~$0.13 and a resistance level of ~$0.225. Considering the decent returns in the last few months, current trading levels, RSI levels, and valuation premium, we suggest investors to book profit and give a “Sell” rating on the stock at the current market price of $0.210 per share, up by 2.439% on 2^nd December 2020.

HT8 Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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