Pilbara Minerals Limited 

PLS Details

Proposed JV with Calix: Pilbara Minerals Limited (ASX: PLS) is engaged in exploring, developing, and mining mineral resources. It owns the Pilgangoora Lithium-Tantalite Project, which is in the Pilbara region of Western Australia. PLS is assessing the potential to produce value-added lithium salts/chemicals at the Pilgangoora project along with Calix. For this purpose, a Memorandum of Understanding (MOU) has been signed between both entities. In addition, both the entities may get into a Joint Venture (JV) to develop demonstration plant and further commercialise the technology at Pilgangoora project. 

3QFY21 Update: PLS has reported an increase in spodumene production to 77,820 dry metric tonnes (dmt) in 3QFY21 against 63,712dmt in 2QFY21. Similarly, the shipments of spodumene concentrate increased to 71,229dmt for 3QFY21 against 70,609dmt in 2QFY21. PLS has witnessed an improvement in lithium chemical prices and strong demand for spodumene concentrate in 3QFY21. In addition, the company has completed the acquisition of Altura Lithium Operations Pty Ltd (ALO) during 3QFY21. 

1HFY21 Financial Highlights: PLS has reported an increase in its revenue to $59.09mn in 1HFY21 vs $37.76mn in 1HFY20. Despite an increase in revenue, the company has incurred a loss of $21.15mn in 1HFY21. The company has seen an increase in its non-current borrowings to $153.96mn as on 31 December 2020 against $123.11mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to foreign exchange prices. Thus, any adverse movement in foreign exchange prices may impact the financials of the company. In addition, the company holds interest-bearing liabilities. Therefore, any severe change in interest rates may affect the financials of the company. 

Outlook: PLS has seen an improvement in the lithium market in 3QFY21 with strong demand and an increased price. The company expects these conditions to continue and forecasts June Quarter 2021 shipping to be in a range of ~75k-90k dmt of spodumene concentrate.

Valuation Methodology: EV/Sales based Relative Valuation Method (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 PLS gave a return of ~18.82% in the last one month and a return of ~36.53% in the last three months. The current market capitalisation of PLS stands at ~$4.01bn as of 11 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$0.232 and ~$1.468. On the technical analysis front, the stock has a support level of ~$1.2067 and a resistance of ~$1.4684. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in its top line in 1HFY21 and strong demand for spodumene concentrate in 3QFY21. For this purpose, we have taken peers Orocobre Ltd (ASX: ORE), Galaxy Resources Ltd (ASX: GXY), Mineral Resources Ltd (ASX: MIN). Considering the company has incurred a loss in 1HFY21, decent stock price movement in past few months, current trading levels, and valuation, we suggest investors to book profits and give a “Sell” rating on the stock at the current market price of $1.43, (as on June 11, 2021, 11.29 AM (GMT+10), Sydney, Eastern Australia).  

PLS Daily Technical Chart, Data Source: REFINITIV 

Centuria Office REIT 

COF Details

Change of Interest of a Substantial Holder: Centuria Office REIT (ASX: COF) is engaged in investing and managing a real estate portfolio in Australia. The company provides its investors with an opportunity for capital growth through investments in real estate across Australia. COF has informed regarding a change in the interest of a substantial holder on 6 May 2021. As a result, PEJR Investments PTY Ltd now holds 7.09% in the company from its previous holding of 6.38%.  

Management Rejig: COF has announced Matthew Hardy as the new Independent Chairman of its responsible entity Centuria Property Funds Limited (CPFL). Darren Collins appointed as the new Chair of the CPFL Audit, Risk & Compliance Committee (ARCC). 

3QFY21 Highlights: COF has informed on leasing terms agreed for ~16,597 sqm through 12 distinct deals. The company has reported an increase in its portfolio occupancy to 92.3% as at 31 March 2021 against 91.5% as on 31 December 2020. Additionally, COF’s property at Robina QLD has witnessed a higher occupancy to 90.2%, addressing a significant portfolio vacancy.  

1HFY21 Financial Highlights: COF has reported increasing its total revenue to $91.67mn in 1HFY21 against $66.43mn in 1HFY20. Despite an increase in revenue, the company has posted a decline in its profit to $21.54mn in 1HFY21 against $24.69mn in 1HFY20. In addition, the company has reported an increase in its cash balance to $32.27mn as on 31 December 2020 against $28.80mn as on 30 June 2020.

Revenue trend (Source: Analysis by Kalkine Group)

Key Risks: The company is engaged in real estate investments. Therefore, lower occupancy levels may impact the financials of the company. In addition, the company is exposed to Covid-19 related risks, resulting in high vacancy rates.

Outlook: COF expects its Funds from Operations (FFO) to be in a range of 19.7-19.9cents/unit due to positive leasing achieved during 3QFY21. The company maintain its distribution guidance of 16.5 cpu for FY21, indicating a current distribution yield of 7.9%.

Valuation Methodology: EV/Sales based Relative Valuation Method (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 COF gave a return of ~5.85% in the last one month and a return of ~15.19% in the last three months. The current market capitalisation of COF stands at ~$1.22bn as of 11 June 2021. The stock is currently trading above the average 52-weeks’ price level range of ~$1.83~$2.40. On the technical analysis front, the stock has a support level of ~$2.245 and a resistance of ~$2.519. We have valued the stock using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of low single-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer median, considering an increase in its top line in 1HFY21 and an increase in portfolio occupancy in 3QFY21. For this purpose, we have taken peers Vicinity Centres (ASX: VCX), Scentre Group (ASX: SCG), Hotel Property Investments Ltd (ASX: HPI, to name a few. Considering the company has registered a decline in its bottom-line in 1HFY21, volatile price movement in the past few months, associated business risks, current trading levels, and valuation, we advise market players to liquidate the stock and suggest investors to book profits. Hence, we give a “Sell” rating on the stock at the current market price of $2.35, down by ~1.261% as on 11 June 2021.

COF 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.

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