Vulcan Energy Resources Limited 

VUL Details

Pilot Plant Commenced: Vulcan Energy Resources Limited (ASX: VUL) is engaged in the exploration of energy metals in Australia. The company is involved in the development of a combined geothermal and lithium extraction project in the Upper Rhine Valley of Germany. The Company’s zero-carbon lithium extraction process uses renewable geothermal energy to power the lithium extraction process and create a renewable energy by-product. The company has announced the commencement of its Direct Lithium Extraction (DLE) pilot plant to showcase the extraction of lithium from Upper Rhine Valley geothermal brine. The company has achieved a significant milestone by designing, building, and commissioning the pilot plant in less than six months. The company has followed a strategic approach to produce lithium hydroxide and supply it to European electric vehicle battery markets.

1HFY21 Financial Highlights: The company has registered an increase in its revenue to $0.371mn in 1HFY21 as compared with $0.028mn in 1HFY20. The company has registered a net loss of $5.92mn in 1HFY21 as compared with $1.77mn in 1HFY20. The company has posted an increase in its total assets to $13.25mn as on 31 December 2020 as compared with $9.10mn as on 30 June 2020.

Key Financials (Source: Company Reports)

Key Risks: The company is engaged in the production of lithium hydroxide and renewable geothermal energy. VUL requires regulatory approvals to carry out its business, any delay in regulatory approvals may lead to financial losses for the company. The company is exposed to fluctuation in the prices of commodity, as any severe fluctuation in commodity prices may result in the financial loss for the company. 

Outlook: As per the company reports, the company is aiming to become world’s first zero carbon lithium producer. The company will utilise its zero-carbon lithium process to produce lithium hydroxide for European electric vehicle batteries and renewable geothermal energy from Upper Rhine Valley geothermal brine.

Stock Recommendation: In the last one month, VUL has increased by ~16.61% and by ~51.90% in the last three months. The current market capitalisation of VUL stands at ~$750.10mn as of 15 April 2021. The stock is currently trading above the average 52-week price level range of ~$0.185-~$14.200. On the technical analysis front, the stock has a support level of ~$7.17 and a resistance of ~$8.941. Considering the commencement of its Direct Lithium Extraction (DLE) pilot plant, modest increase in H1FY21 revenues (YoY), increase in net assets, and associated risks with the company, we recommend a “Speculative Buy” rating on the stock at the current market price of $7.580, up by 8.59% as on 15 April 2021.

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

Orica Limited 

ORI Details

Robust Growth in Volumes: Orica Limited (ASX: ORI) is primarily engaged in the manufacturing and distribution of commercial blasting systems, technical services and solutions, mining and tunneling support systems and various chemical products and services. The company is present in Australia Pacific & Asia, North America, Europe, Middle East & Africa, Latin America, Minova, Orica Monitor, Global Support and Eliminations. The company has registered decent growth in AN volume demand in Pilbara, supported by robust iron ore market. The company has registered growth in Coal segment in east of Australia through new contracts and one-off sales to competitors. ORI has registered a volume growth in copper segment from Mongolia region.

Appointment of a New CEO and Managing Director: ORI has announced that Mr. Sanjeev Gandhi has been officially appointed as a new CEO and Managing Director with effect from 1 April 2021. Mr. Gandhi will be replacing Mr. Alberto Calderon.

FY20 Financial Highlights: The company has registered a decline in its sales revenue to $5,611.3mn in FY20 as compared with $5,878mn in FY19, impacted by COVID-19 pandemic. The company has posted a decline in its Underlying NPAT to $299.3mn in FY20 as compared with $372mn in FY19. The company has registered a significant increase in its cash and cash equivalents position to $920.5mn as on 30 September 2020 as compared with $412.6mn as on 30 September 2019.

EBIT Growth (Source: Company Reports)

Key Risks: As ORI is operating in multiple countries, geopolitical issues pose a great risk for the company which may lead to discontinuation of business, leading to financial losses for the company. The company is exposed to foreign exchange risk as well, as any severe change in the foreign exchange prices may lead to financial losses for the company.   

Outlook: For 2HFY21, the company is expecting to post an improved EBIT over 1HFY21 and to register an overall improvement in EBIT for FY21. The company is expecting higher realisation of synergies in 2HFY21. ORI is expecting its capital expenditure to be in a range of ~$380mn to $400mn excluding Burrup business but including of Exsa business. 

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, ORI has increased by ~9.57% and decreased by ~1.16% in the last three months. The current market capitalisation of ORI stands at ~$5.84bn as of 15 April 2021. The stock is currently trading above the average 52-week price level range of ~$11.17-~$18.62. On the technical analysis front, the stock has a support level of ~$13.94 and a resistance of ~$14.953. 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 posted a decline in its underlying NPAT and a decline in its sales revenue. For this purpose, we have taken peers Incitec Pivot Ltd (ASX: IPL), Salt Lake Potash Ltd (ASX: SO4), Scidev Ltd (ASX: SDV) to name a few. Considering the company has registered an increase in its cash position, witnessed growth in FY20 EBIT, current trading levels, and valuation, we recommend a “Buy” rating on the stock at the current market price of $14.42, up by 0.417% as on 15 April 2021.

ORI 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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