AGL Energy Limited

AGL Details

Ceasing of Substantial Holder and Change of Director’s Interest: AGL Energy Limited (ASX: AGL) is mainly involved in providing electricity, gas, solar, and renewable energy services for residential and commercial clients. The company has notified that on 5^th November 2021, Vanguard Group has ceased to hold a relevant interest in the company. On 2^nd November 2021, one of the company’s Directors, Jacqueline Cherie Hey, acquired 12,479 ordinary shares of the company for a consideration of $6.09 per share via an off-market transfer.

2021 AGM Highlights: On 22 September 2021, AGL held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that FY21 was extremely challenging for AGL mainly due to declining energy prices and the impacts of COVID-19 pandemic. Some of the key highlights of AGM are as follows:

• Decline in Underlying Profit: AGL’s underlying profit after tax stood at $537 million in FY21, down by 37% on the previous year, mainly due to a reduction in wholesale electricity prices, and lower electricity demand due to COVID-19 lockdowns.
• Dividend Update: For H2FY21, the company paid a final, unfranked dividend of 34 cents per share, taking the total dividend for FY21 to 75 cents per share.
• Acquired New Business: In March 2021, AGL acquired two of Australia’s largest commercial solar businesses – Solgen and Epho, which strengthened AGL’s solar capabilities.

Underlying PAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Volatility in Electricity Prices: The company is exposed to the risks related to the fluctuations in the price of wholesale electricity as it could impact its financials.
• Fluctuations in Electricity Demand: The reduction in the demand for electricity could impact the prices, which could affect the company’s financials.

Outlook: Looking ahead, the company is focused on reducing its operating costs by $150 million by the end of FY22 and reducing its sustaining capital expenditure by $100 million by FY23. For FY22, the company expects its NPAT to be between $220 million and $340 million.

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: Over the last three months, the stock has corrected by 28.91% and is trading lower than the average 52-week price level band of $5.22 - $14.38. The stock has been valued using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). The company can trade at a slight discount to its peers, considering the weak FY21 results, uncertainty surrounding the COVID-19 pandemic and fluctuations in wholesale electricity prices. For the valuation purpose, peers such as Origin Energy Ltd (ASX: ORG), Karoon Energy Ltd (ASX: KAR), Oil Search Ltd (ASX: OSH), etc. have been considered. Considering the company’s strengthened solar capabilities, focus on reducing operating costs, modest outlook, current trading level, valuation and key associated risks, we give a “Speculative Buy” rating on the stock at the closing price of $5.30, down by ~1.487% as on 15 November 2021.

AGL Daily Technical Chart, Data Source: REFINITIV

Mount Gibson Iron Limited

MGX Details

2021 AGM Highlights: Mount Gibson Iron Limited (ASX: MGX) is a producer of high-quality direct shipping grade iron ore products. On 10 November 2021, MGX held its 2021 Annual General Meeting (AGM), wherein, the management highlighted several operational milestones it achieved during FY21, including the completion of the bulk stripping program at Koolan Island and completion of the Extension Hill low-grade sales program and the development of the Shine iron ore operation. Some of the key points highlighted during AGM are as follows:

• FY21 Results: For FY21, the company reported total sales revenue of $312 million FOB (Free on Board) and earned a NPAT of $64.0 million. Operating cashflow for FY21 stood at $165.2 million.
• Dividend Update: For H2FY21, MGX has paid a fully franked final dividend of 2.0 cents per share for the year.
• Future Focus: MGX is focused on managing its capital expenditure during the current phase of investment at Koolan Island.

NPAT Trend (Source: Analysis by Kalkine Group)

September 2021 Highlights:

• Decline in Ore Sales: For 2021 September quarter, the company reported total ore sales of 439kwmt, down from 481kwmt in 2021 June quarter, reflecting the overburden stripping program at Koolan Island and the initial ore sales from the Shine operation in the Mid-West.
• Cash Outflow update: For the quarter, the company reported total cash outflow of $111 million.
• Cash and Debt Balance: As at 30 September 2021, the company had cash and investments of $250 million and no borrowing in its balance sheet.

Key Risks:

• Fluctuations in Iron Ore Prices: The company is also exposed to the risk related to the changes in the iron ore prices as it could impact its financials.
• Change in Government Policies: The company’s operational performance is exposed to the risks related to consistency in government policy and the continued attainment of regulatory approvals.

Outlook: With its robust balance sheet, the company seems well placed to pursue internal and external growth opportunities. Looking ahead, the company is focused on progressing of the Main Pit waste stripping and footwall support programs at Koolan Island and completing the Shine operation’s transition at Mid-west operations. Further, the company is also focused on driving sustainable operating and cost improvements across the existing business.

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: Over the last three months, the stock has corrected by 49.99% and is trading lower than the average 52-week price level band of $0.375 -$1.01. The stock has been valued using EV/Sales multiple based illustrative relative valuation method and arrived at a target price of a low double-digit upside (in % terms). The company can trade at slight discount to its peers, considering the challenges associated with the uncertainties surrounding the COVID-19 pandemic, and fluctuations in iron ore prices. For the valuation purpose, peers such as Champion Iron Ltd (ASX: CIA), Fortescue Metals Group Ltd (ASX: FMG), BHP Group Ltd (ASX: BHP), etc., have been considered. Considering the company’s current trading level, robust balance sheet, ongoing focus on and cost improvements, valuation and key associated risks, we give a “Speculative Buy” rating on the stock at the closing price of $0.390 as on 15 November 2021.

MGX 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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