Vulcan Energy Resources Limited

VUL Details

Vulcan Energy Resources Limited (ASX: VUL) is an exploration company operating a combined geothermal and lithium extraction project located in the Upper Rhine Valley of Germany.

Significant Developments:

• Effective on May 19, 2022, VUL will release about 9.6k ordinary shares from the escrow account.
• The company’s Upper Rhine Valley is a well-known area for geothermal operations.
• It had kick-started producing the first samples of battery-grade lithium hydroxide. So far, it has signed offtake agreements with Volkswagen Group, Stellantis, Renault Group, Umicore, and LG Energy Solutions.
• The proposed expansion at the Upper Rhine Valley Field is expected to hit 40kt of battery-grade lithium.
• Pre-fabrication of its Demonstration Plant commenced offsite in Germany.
• It had appointed experienced industry veterans – Dr Gunter Hilken and Mr Mark Skelton to the Board.
• In Q3FY22, it had realized EUR 2.2 million from customers and posted operating cash outflows of EUR 3.06 million.
• As of March 31, 2022, the cash balance reached EUR 115.61 million.

Cashflow Summary (Analysis by Kalkine Group)

Key Risks: VUL is in the exploration stage. Any delays in getting approvals or exploration may drain the available liquidity.

Outlook: VUL executed a 20-year purchase agreement with MVV Energie AG to supply 240 Gwh per year of renewable heat. This takes a step closer to its decarbonising objective. 

Valuation Methodology: Price-to-Book Value 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 VUL has been corrected by ~18.66% in the past three months. The stock of VUL has recovered from its 52-week low price of $6.360. The stock has been valued using a Price-to-Book Value multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering negative operating cash flows in Q3FY22. For the purpose of valuation, peers such as Allkem Ltd. (ASX: AKE), Arizona Lithium Ltd. (ASX: AZL), Aeon Metals Ltd. (ASX: AML), and others have been considered. Considering the new offtake agreement signed with LG Energy Solutions, a 20-year binding agreement with MVV Energie AG, the commencement of Demonstration Plant, revenue contribution from the recently acquired Naturlich Insheim, adequate cash balance, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $7.190 as on 16 May 2022, up ~1.27%. 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.

VUL Daily Technical Chart, Data Source: REFINITIV 

Boss Energy Limited

BOE Details

Boss Energy Limited (ASX: BOE) is an exploration company focused on uranium. It operates Honeymoon Uranium Project located in South Australia.

Key Business Developments:

• Effective on May 09, 2022, Mitsubhishi UFJ Financial Group, Inc. has increased its shareholdings in BOE from 5.23% to 6.43%.
• As announced on May 2, 2022, BOE issued ~12.99 million fully paid ordinary shares under its Tranche 2 Placement program. The company intended to raise ~$28 million (pre-cost) from the issue. The Tranche 2 shares will begin trading on the ASX on May 5, 2022. Together with this, BOE raised $125 million to develop its Honeymoon Uranium Project towards the first production.
• During the quarter ending March 31, 2022, BOE completed the FEED study on its Honeymoon Uranium project. It is concluded that the project to deliver an IRR of 47% at a uranium price of US$60/lb. It is expected to have a nameplate production of 2.45Mlb per annum at an AISC of US$25.60 over the mine life.
• It had incurred negative operating cash flows of $1.20 million in Q3FY22 due to nil cash receipts from customers and heightened exploration costs. It had closed the period with an unrestricted cash balance of $106.0 million as of March 31, 2022.

Cashflow Summary (Analysis by Kalkine Group)

Key Risks: With nil cash-generating assets, BOE may need ample liquidity to fund the development plans of its uranium project.

Outlook: BOE is expecting to commence production in about 18 months from the completion of the development of its Honeymoon Uranium Project.

Valuation Methodology: Price-to-Book Value 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 BOE has been corrected by ~28.82% in the past six months. The stock of BOE is trading below its average of the 52- week low and high price band of $1.120-$3.100. The stock has been valued using a Price-to-Book Value multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering nil revenue generation assets. For the purpose of valuation, peers such as Energy Resources Of Australia Ltd. (ASX: ERA), Bannerman Energy Ltd. (ASX: BMN), Vimy Resources Ltd. (ASX: VMY), and others have been considered. Considering the fundraising of $125 million from its Tranche 2 program, completion of the FEED study at its Honeymoon Uranium project, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $2.050 as on 16 May 2022, down ~0.97%. 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.

BOE 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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