Perenti Global Limited

PRN Details

Shareholding Change: Perenti Global Limited (ASX: PRN) provides surface, underground mining, and additional support services in the mining sector. On 10 September 2021, L1 Capital Pty Limited increased its shareholding from 7.98% to 10.94% voting rights and held 77.14 million shares in PRN.

 FY21 Key Takeaways:

• Revenue Growth: PRN posted a steady revenue of $2.02 billion in line with the guidance for FY21 and flat on a year-over-year basis.
• Record Cash Conversion: The EBITDA to cash conversion rose to 105%, up by 9% points on FY20, thereby providing steady liquidity position.
• Expanded in New Markets: PRN received 58 new projects in FY21 and expanded to North America (Canada) and Botswana during the year.
• Reduced Debt: PRN reduced its net debt by 10% on FY20 to ~$503 million as on 30 June 2021 and strengthened the balance sheet.

Net Debt Trend (Analysis by Kalkine Group)

Key Risks: The growing pace of technological advancements in the mining sector, changes in the geopolitical, economic, regulatory, or environmental trends, and the continued COVID-19 impact pose a risk to PRN.

Outlook:

• The company has $6.8 billion of work-in-hand from Australia, Africa, and North America, Africa, and North America, supporting revenue for three-plus years at the current run rate.
• For FY22, PRN has a ~$0 billion secured revenue and tender pipeline worth $11.0 billion.
• PRN expects the Underground mining segment to contribute strongly to earnings in FY22, driven by improved productivity from Zone 5. The segment has $8.4 billion of a tender pipeline.
• The company expects that Africa Mining Services (AMS) business will continue to deliver improved results and grow in FY22, driven by the award of Motheo, the largest ever contract.
  

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 stock of PRN gave a positive return of 27.06% in the past three months and a negative return of 15.07% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.625 - $1.555. The stock has been valued using an Enterprise Value to EBITDA based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ median EV/EBITDA multiple, considering its net loss, lower net cash flows from operations, and associated risks of COVID-19, regulatory risks, etc. For the purpose of valuation, few peers like Macmahon Holdings Limited (ASX: MAH), MACA Limited (ASX: MLD), DDH1 Limited (ASX: DDH), and others have been considered. Considering the current trading levels, reduction in net debt, new projects in hand and expansion to North American market, tender pipeline opportunities for FY22, valuation, and key risk associated with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.845, down by 1.745% as on 28 September 2021.

PRN Daily Technical Chart, Data Source: REFINITIV  

Cooper Energy Limited

COE Details

Government Approval Received: Cooper Energy Limited (ASX: COE) commercialises hydrocarbons to South-East Australia, produces crude oil from the Cooper basin and gas from the Otway and Gippsland basins. On 21 September 2021, Bass Oil Limited (BAS) declared that the South Australian Government had approved its ongoing deal of acquiring an interest in the Copper Basin landholdings portfolio. As a result, BAS seeks final sanction and estimates the transaction closure by mid-October 2021. 

New Gas Sales Contract: On 13 September 2021, AGL Energy Limited (AGL) and COE decided to ink a gas sales agreement (GSA). As per the agreement, Otway Basin will receive all non-contracted and developed volumes from the Henry, Casino, and Netherby wells, effectively from 1 January 2022. The price range for the new GSA has been set as per the Gas Inquiry Interim Report, July 2021, as $6-8/GJ. The company has also made changes in the Sole GSA to reduce the Annual Contract Quantity (ACQ) to $6 PJ per year and now extends to 31 December 2030.

Presentation Highlights from the Good Oil and Gas Energy Conference:

• COE will commission the Athena Gas Plant in Q2FY22 to develop a low-cost processing centre for the Otway Basin developments. The company is preparing for the FEED entry for the Otway Phase 3 development (OP3D) and targets FID in FY22 to commercialise gas supply.
• The exploration of the Gippsland Basin has led to the discovery of numerous prospects - Manta Deep, Gummy Deep, Chimaera East, Blobfish, and Spineback.

CFO Replacement: COE recently announced that Virginia Suttell, the CFO of the company will exit the firm on 30 September 2021. The search for a new CFO is underway.

Financial Takeaways from FY21:

• Reduced Loss After Tax: COE reported a 65% YoY improvement in loss after tax to $30 million in FY21.
• Lower Operating Cash Flows: The operating cash flows generated stood at $8.1 million, down by 83% YoY in FY21.
• Higher Gas Production: The company recorded a 69% YoY rise in the oil and gas production to 2.63 MMboe driven by the significant 395% YoY jump in the Sole gas (field) production from its Gippsland Basin.
  

The Trend of Yearly Production from FY17-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 uncertainties in commodity price changes, exploration, and financial risks on its business operations.

Outlook:

• For FY22, COE estimates 0 – 3.6 MMboe (n/c) of production, $60 – 70 million (n/c) of Underlying EBITDAX, and $25 – 30 million (n/c) of capex.
• The sales volume guidance has been revised to 3.7 – 4.1 MMboe in FY22 from the previously given 3.7 – 4.3 MMboe.

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 stock of COE gave a positive return of 6.66% in the past month and a positive return of 2.12% in the past three months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.195 - $0.405.  The stock of COE has a support of ~$0.222 and a resistance level of ~$0.272. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average EV/Sales multiple, considering its higher underlying loss after tax and net debt in FY21, lower operating cash flows, and the revised narrowed sales volume guidance for FY22. For the purpose of valuation, few peers like Senex Energy Limited (ASX: SXY), Santos Limited (ASX: STO), Woodside Petroleum Limited (ASX: WPL), and others have been considered. Considering the current trading levels, increase in top-line, decent outlook with higher production estimate in FY22, rise in the oil and gas production, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $0.240, up by ~4.347% as on 28 September 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 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.

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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