Sandfire Resources Limited
1Ratios such as P/E, EPS, ADY are on Trailing Twelve-Month basis, which are subject to change based on certain factors such as company performance, and stock price changes.
2ROE has been taken for the half year ending December'2021.
SFR Details
Material Updates: Sandfire Resources Limited (ASX: SFR) is a copper and gold producer with an exploration portfolio consisting of DeGrussa project operations, Motheo copper Mine, Kalahari copper Belt Exploration, and others.
- In SFR, Mitsubishi UFJ Financial Group, Inc. and First Sentier Investors Holdings Pty Limited increased their shareholdings from 5.91% to 7.34%, respectively.
- SFR delivered ~US$654.8 million in sales revenue and an EBITDA of ~US$348.5 million for year-to-date FY22 (YTD FY22) ended 31 March 2022.
- MATSA acquisition contributed ~US$98.6 million to the group EBITDA of ~US$186.9 million for Q3FY22 since 1 February 2022.
Quarterly Trend of Contained Metal Production; (Analysis by Kalkine Group)
Key Risks: The company faces resource expansion risk, a tight labour market situation, supply chain disruptions, and metal price volatility.
Outlook:
- SFR provides production guidance of ~92-95kt for copper at a C1 unit cost of ~$1.19/lb Copper payable for FY22. The gold production is estimated to be ~30,000 – 34,000 ounces in FY22.
- SFR is progressing on track to construct the Motheo copper mine in Botswana and estimates the first production schedule to be during the June 2023 quarter.
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 SFR gave a negative return of ~3.76% in the past three months and a negative return of ~18.63% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $4.760 - $7.495. The stock has been valued using the 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 the integration risk, ore depletion, and forex rate changes. For this purpose of valuation, a few peers like Dacian Gold Ltd (ASX: DCN), St Barbara Ltd (ASX: SBM), and 29Metals Ltd (ASX: 29M) have been considered. Considering the current trading levels, increase in copper production in Q3FY22, EBITDA contributions from MATSA, supportive robust prices of copper and zinc, an exploration pipeline across projects, an indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $5.110, as of 16 June 2022.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
SFR Daily Technical Chart, Data Source: REFINITIV
Jupiter Mines Limited
JMS Details
Key Positives:
Trend of Nil Debt-to-Equity Ratio in FY20-FY22, Higher Dividend Paid (~$0.010 for 2HFY22 vs $0.005 for 1HFY22)
Key Negatives:
Decline in Gross Margin (39.1% in 2HFY22 Vs. 77.6% in 2HFY21), Decline in Current Ratio (2.02x in 2HFY22 Vs. 2.91x in 2HFY21)
Key Investment Risks:
Supply Chain Issues, COVID-19 Disruptions, Lack of Availability of Skilled Labour, Exploration Risk, etc.
Results of FY22 (Ended 28 February 2022): Jupiter Mines Limited (ASX: JMS) holds ~49.9% beneficial interest in Tshipi e Ntle Manganese Mining Pty Limited (Tshipi), the operator of the Tshipi Borwa manganese mine in South Africa and exports manganese ore.
- Share of profit from Tshipi declined from ~$62.9 million in FY21 to ~$42.8 million in FY22 because of increased freight costs and low manganese prices.
- Tshipi posted a ~9.8% Y-o-Y increase in production from ~3.35 million tonnes in FY21 to ~3.68 million tonnes in FY22.
Comparative Key Metrics; (Analysis by Kalkine Group)
Key Risks: The company faces the risk of low manganese prices, exploration risk, a significant increase in freight costs, supply chain disruptions, and higher bunker fuel prices.
Outlook:
- JMS will hold the 2022 Annual General Meeting on 26 July 2022 and plans to release the 1HFY23 results on 27 October 2022.
- JMS witnessed the demand for manganese ore from India as crude steel production increased and improved demand for manganese alloys outside of India. It reports new avenues for utilising manganese concentrate in the electric vehicle battery sector and increased demand for higher-grade ore in 2HFY22.
- JMS believes that downstream steel demand fundamentals will resume in FY23 in the market and be further aided by stimulus initiatives.
Valuation Methodology: P/E 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 JMS gave a negative return of ~21.99% in the past three months and a negative return of ~9.30% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.180 - $0.310. The stock has been valued using the P/E- multiple-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’ average P/E multiple, considering its decline in top line, NPAT in FY21, lower manganese prices, and elevated freight costs. For this purpose of valuation, a few peers like South32 Ltd (ASX: S32), Pilbara Minerals Ltd (ASX: PLS), Nickel Industries Ltd (ASX: NIC) have been considered. Considering the current trading levels, demand opportunities for utilisation of manganese concentrate in the electric vehicle market, increased demand for higher grade ore, an indicative upside in valuation, and associated kye business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.195, as of 16 June 2022.
Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
JMS 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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