Perenti Global Limited

PRN Details

FY21 Financial and Operational Highlights: Perenti Global Limited (ASX: PRN) is in the provisioning of surface and underground mining and mining support services. During FY21, the company posted solid operating performance and growth from the underground business and an improved second half from the Surface business.

• PRN recorded revenue amounting to $2.02 billion, which is in line with FY20. NPAT(A) for the year amounted to $77 million against $110.3 million in FY20.
• The company has secured new work and contract extensions of $2.8 billion, which includes two key growth contracts in North America and Botswana since 30^th June 2020,
• PRN witnessed an improvement of 10% in net debt to $503.3 million and, leverage stood stable at 1.3x.
• As of now, the company is two and a half years into implementing its 2025 Strategy, and it has successfully delivered on a range of initiatives, which include delivering value to clients, generating strong operating cash flows, evident by cash conversion of 105% in FY21.

Revenue and NPAT(A) (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Disruptions: PRN’s operational and financial performance could be impacted due to the occurrence of new strains with increased transmissibility.
• Climate Change and Carbon Emissions: The company is exposed to risks arising from climate change and carbon emissions, as regulation of greenhouse gasses is increasing globally.

Outlook:

• The performance for 1HFY22 is in-line with the expectations and similar to 2HFY21. In addition, it expects a strong 2HFY22 on the back of enhanced earnings from growth projects as there was improvement in productivity.
• The company had work in hand of $6.6 billion at the end of FY21, which supports topline for over three years and a strong, tender pipeline of $11.0 billion. PRN has already secured revenue of ~$2.0 billion for FY22.
• PRN expects to report revenues in the range of $2.0 billion- $2.2 billion and EBIT(A) of between $165 million- $185 million at an AUD: USD exchange rate of 0.75.

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: The stock of PRN is trading below its 52-week low-high average of $0.625 - $1.555, respectively. The stock of PRN has been corrected by ~17.34% and ~5.26% in the past one month and three months, respectively. The stock has been valued using EV/EBITDA 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’ average EV/EBITDA multiple, considering COVID-19 related disruptions and inefficiency in generating profits. For the purpose of valuation, peers such as DDH1 Ltd (ASX: DDH), MACA Ltd (ASX: MLD), Macmahon Holdings Ltd (ASX: MAH), and others have been considered. Considering the expected upside in valuation, new works and contract extensions, improvement in debt levels, decent liquidity position, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.795, as on 07 December 2021, 10:40 AM (GMT+10), Sydney, Eastern Australia.

PRN Daily Technical Chart, Data Source: REFINITIV  

Mount Gibson Iron Limited

MGX Details

Q1FY22 Financial and Operational Highlights: Mount Gibson Iron Limited (ASX: MGX) is involved in the mining and export of hematite iron ore. The first quarter of FY22 proved very challenging due to the deterioration of market conditions because of falling iron ore prices, increase in product discounts and penalties and more than double shipping freight charges.

• During the quarter, MGX posted revenue of $29 million FOB before adverse provisional pricing adjustments of $8 million.
• The company recorded ore sales of 0.4 million wet metric tonnes (Mwmt), which comprised 0.3 Mwmt from Koolan Island and 0.1 Mwmt from the Shine operation in the Mid-West.
• MGX closed the quarter with cash and investments of $250 million as compared to $365 million as on 30 June 2021. This fall was mainly led by significant ongoing investment at Koolan Island, final development and commissioning at Shine and the rapid deterioration in market conditions

Cash Position (Source: Analysis by Kalkine Group)

Key Risks:

• Climate Change Risk: MGX is exposed to a risk arising from the change in climate, which may lead its operation on a temporary suspension.
• Commodity Price Risk: The company’s performance could be impacted by any adverse movement in iron ore prices.

Outlook:

• For FY22, MGX anticipates iron ore sales in the range of 3.0-3.2 Mwmt at site cash operating costs of $75-80/wmt FOB.
• During the upcoming year, the Koolan Island is likely to contribute with iron ore sales of between 2.0-2.2 Mwmt.

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 MGX is trading near to its 52-week low level of $0.350, offering a decent opportunity for accumulation. The stock of MGX has been corrected by ~30.84% and ~55.95% in the past three and six months, respectively. The stock has been valued using P/E 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’ average P/E multiple, considering lower gross margin, low ROE, and fall in profits. For the purpose of valuation, peers such as Fortescue Metals Group Ltd (ASX: FMG), Mineral Resources Ltd (ASX: MIN), South32 Ltd (ASX: S32), and others have been considered. Considering the expected upside in valuation, decent liquidity position, deleveraged balance sheet, decent outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.360 as on 07 December 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia.

MGX Daily Technical Chart, Data Source: REFINITIV  

MACA Limited

MLD Details

Change in Directors Interest: MACA Limited (ASX: MLD) is involved in the provisioning of contract mining, civil & infrastructure, and structural, mechanical and piping (through Interquip) services to the resource sector. Recently, Michael Sutton has made a change to holdings in the company via acquiring 821,512 Performance Rights vesting 30 June 2024.

FY21 Financial Summary:

• During FY21, the company witnessed an improved performance in its underlying business operations, evident by a record rise of 45% in revenue to $1,173.9 million as compared to $808.0 million in FY20.
• On a reported basis, NST recorded EBITDA and EBIT of $140.4 million and $40.2 million, reflecting margins of 12% and 3.4%, respectively.
• The company closed FY21 with a net debt position of $180.2 million against $73.4 million as on 30^th June 2020.
• Subsequent to the end of FY21, the company secured an extension of its mining services contract with Pilbara Minerals for a further 12 months at the Pilgangoora Lithium Project. The said extension is likely to derive revenue of around $70 million over the 12-month term through to November 2022.

Revenue and EBITDA Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Contract Pricing Risk: The company’s business is exposed to a risk arising from the change in the pricing of the contract, which may impact the financial health of the business.
• Delivery Risk: The company’s operational health could be impacted due to any failure in the execution and delivery of projects that could impact the business performance.

Outlook:

• PRN possesses a pipeline of organic growth opportunities of $11 billion in the Mining, Civil & Infrastructure and Interquip divisions.
• MLD is optimistic that the improved performance of its enlarged Mining Division is likely to be maintained in FY22.
• MLD’s mining division entered FY22 with secured work in hand of approx. $1.2 billion, and MLD is in a decent position to increase its record order book.

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 MLD is trading below its 52-week low-high average of $0.645 - $1.515, respectively. The stock of MLD gave a negative return of ~8.69% in the past one month. The stock has been valued using the P/E 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’ average P/E multiple, considering the COVID-19 disruptions and high debt to equity ratio. For this purpose of valuation, peers such as Macmahon Holdings Ltd (ASX: MAH), Perenti Global Ltd (ASX: PRN), and NRW Holdings Ltd (ASX: NWH) have been considered. Considering the expected upside in valuation, growing topline, rising earnings, pipeline of growth opportunities, decent outlook, current trading levels and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing price of $0.735, up by ~0.684% as on 07 December 2021.

MLD 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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