Kirkland Lake Gold Ltd

*As at 31 December 2020

KLA Details

Detour Lake Acquisition Aided Business Growth: Kirkland Lake Gold Ltd (ASX: KLA) is engaged in gold mining, development, and exploration. The company owns a varied portfolio of holdings located in the stable mining jurisdictions of Canada and Australia. The main gold mines include the Macassa Mine located in northeastern Ontario, Detour Lake mines in Northern Ontario and the Fosterville Gold Mine located in the state of Victoria, Australia. The company has acquired Detour Lake Mine, which helped KLA to register higher cash flows in FY20. Detour lake has contributed US$308.0mn of free cash flow, which is more than 40% of total free cash flow in FY20. 

FY20 Financial Highlights: KLA has registered an increase in revenues and profits in FY20, despite COVID-19 situation across the globe. The company has registered higher revenues to US$2,460mn in FY20 as compared with US$1,379mn in FY19 due to 42% increase in the sales of gold. The company has posted an increase in profits to US$787.7mn in FY20 as compared with US$560.08mn in FY19 on the back of higher average gold realised price to US$1,722 per ounce. The company has posted higher cash to US$847.6mn as of 31 December 2020 as compared with US$707.20mn as on 31 December 2019.

FY20 Result Highlights (Source: Company Reports)

New Life of Mine Plan Delivered: The company has announced regarding a technical report on Detour Lake where the company has provided production estimates to 680,000 – 720,000 ounces from 2021 – 2024, 800,000 ounces in 2025 and over 900,000 ounces by 2032. The company expects Detour Lake mine to provide 22 years of production life with the potential for further growth. 

Dividend Declaration: The company has declared a dividend amounting to US$0.1875 per share. The ex-date for dividend is decided as March 30, 2021 and the payment date for dividend is decided as April 14, 2021. 

Key Risks: KLA is engaged in gold mining activities, any fluctuation in the prices of gold may result in financial losses for the company. The company requires regulatory approvals to carry out business activities, any delay in regulatory approvals may result in loss of business. 

Outlook: As per the company report, KLA has provided production guidance of 1,300,000 – 1,400,000 ounces for full year of 2021. The company is expecting production of 600,000-650,000 ounces in the first half of the year whereas 700,000-750,000 ounces production during the second half of FY21.

Valuation Methodology: Price/Earnings 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, KLA has increased by ~3.36% and decreased by ~17.37% in the last three months. The current market capitalisation of KLA stands at ~$9.65bn as of 9 April 2021. The stock is currently trading below the average 52-week price level range of ~$41.50-~$80.50. On the technical analysis front, the stock has a support level of ~$44.04 and a resistance of ~$47.83. We have valued the stock using a Price/Earnings 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 premium as compared to its peer average considering, acquisition of Detour Lake project generates cash flows for the company. For the purpose, we have taken peers Resolute Mining Ltd (ASX: RSG), Regis Resources Ltd (ASX: RRL), Dacian Gold Ltd (ASX: DCN) to name a few. Considering the company’s positive outlook, incremental production guidance, dividend declaration, valuation, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $46.40 as on 9 April 2021.

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

Worley Limited

WOR Details

Sustainability Project Drives Business Growth: Worley Limited (ASX: WOR) is engaged in industrial engineering services in Australia. The company mainly provides engineering design and project delivery services, including providing maintenance and support services to sectors, which include energy, chemicals, and resources. The company is present in the US, Europe, the Middle East & Africa (EMEA), and Asia-Pacific (APAC). Sustainability project is an important business part for WOR. It represents ~30% of aggregated revenue in 1HFY21. The company has seen an increase in energy transition and circular economy opportunities from 11% to 18% of total factored sales pipeline.

Energy Transition and Circular Economy (Source: Company Reports) 

Project Awarded: WOR has recently announced on 8 April 2021, regarding a project awarded for front end engineering services by Philips 66 Company. The project will be focusing on converting Philips 66 refinery in California to a renewable fuels manufacturing facility.

1HFY21 Financial Highlights: WOR has registered a decline in revenues to $4,876mn in 1HFY21 as compared with $6,901mn in 1HFY20. The company has posted a decline in its EBITDA to $207mn in 1HFY21 as compared with $366mn in 1HFY20. The company has registered higher cash and cash equivalents to $477.6mn as on 31 December 2020 as compared with $466.9mn as on 30 June 2020.

Key Risks: The company operates in a highly competitive and dynamic environment which could impact the company’s financial performance. Further, the company is exposed to the risks and uncertainties caused by the COVID-19 pandemic. WOR is also exposed to the demand risks, as the markets for the company’s services are exposed to volatile and cyclical commodity prices.

Outlook: As per the company reports, WOR is expecting demand for LNG segment to grow faster than supply which will support the company’s investment in the segment. WOR is expecting project sanctioning activity to grow in 2021 and investments to grow at a CAGR of 8% till 2023. 

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, WOR has increased by ~4.11% and decreased by ~16.24% in the last three months. The current market capitalisation of WOR stands at ~$5.61bn as of 9 April 2021. The stock is currently trading above the average 52-week price level range of ~$6.38-~$14.01. On the technical analysis front, the stock has a support level of ~$10.29 and a resistance of ~$10.92. We have valued the stock using an EV/Sales 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, the company has registered a decline in its top line and bottom line in 1HFY21. For the purpose, we have taken peers MMA Offshore Ltd (ASX: MRM), Monadelphous Group Ltd (ASX: MND), Ampol Ltd (ASX: ALD). Considering a new project awarded by Philips 66, sustainability projects adding to revenues, positive outlook, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $10.60, down by 1.396% as on 9 April 2021.

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

Macmahon Holdings Limited

MAH Details

Expansion of Existing Projects aids Business Growth: Macmahon Holdings Limited (ASX: MAH) is primarily engaged in contractual mining services. The company has three operating segments: Surface Mining, Underground Mining, and International Mining, which are aggregated into the Mining segment. The Mining segment operates in two principal geographical areas, including Australia and Overseas. The company has seen an expansion in its existing projects like Mt Morgans, Byerwen, Daisy Milano and Cock-eyed Bob. The company is carrying out mining services and various other services related to mining at all these sites. At the same time, the company has commenced new projects (Bellevue and Santa) for enhancing its revenues.

1HFY21 Financial Highlights: MAH has registered a decline in its revenues to $652.47mn in 1HFY21 as compared with $686.73mn in 1HFY20. Despite a decline in revenues, the company has registered an increase in its NPAT of $44.77mn in 1HFY21 as compared with $28.72mn in 1HFY20. The company has posted an increase in its cash position to $148.43mn as on 31 December 2020 as compared with $141.83mn as on 30 June 2020.

Current Asset Position (Source: Company Reports)

Key Risks: The company is engaged in mining activities, any adverse changes in climatic conditions may lead to discontinued business operations and leading to financial losses for the company. The company requires regulatory approvals to carry out its business regularly, any delay or disapproval from the regulator may lead to financial losses for the company.

Outlook: As per the company reports, MAH is maintaining its FY21 EBIT(A) guidance in a range of $90-$100mn. Due to change in revenue treatment for Batu Hijau project, the company is expecting its revenues in a range of $1.3bn-$1.4bn in FY21, restated from earlier revenue estimates of $1.4bn-$1.5bn. After winning a contract at Deflector and Warrawoona contract, the order book for MAH will stand at ~4.21 bn.

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, MAH has decreased by ~2.27% and by ~17.30% in the last three months. The current market capitalisation of MAH stands at ~$474.09mn as of 9 April 2021. The stock is currently trading below the average 52-week price level range of ~$0.180-~$0.287. On the technical analysis front, the stock has a support level of ~$0.20 and a resistance of ~$0.235. 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 the company has registered a decline in its top line and an increase in current liabilities. For the purpose, we have taken peers like Perenti Global Ltd (ASX: PRN), Mitchell Services Ltd (ASX: MSV), to name a few. Considering the increase in profits in H1FY21, rising cash balance, positive outlook, valuation, and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.210, down by 4.546% as on 9 April 2021.

MAH 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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