APA Group

APA Details

Joint Agreement with Origin Energy: APA Group (ASX: APA) is engaged in providing energy infrastructure. Its segments include Energy Infrastructure, Asset Management and Energy Investment. APA has announced a new east coast grid gas transportation agreement (GTA) with Origin Energy Limited. APA has reached a Final Investment Decision (FID) to expand transportation capacity on its East Coast Grid by ~25%, linking Queensland with southern markets. Due to strong demand from the customers for transportation capacity, APA has reached FID to expand the east coast grid. 

Growth Opportunities in Energy Markets: APA expects a significant growth opportunity in renewable and firming, electrification, and hydrogen infrastructure. APA expects more than $68bn of investment opportunities in these segments by 2040 in Australia. In the US, more than US$2.7trillion of investment opportunities is expected by 2040. 

Business Update: APA has reported an increase in sole cash flows since 1 April 2021, with average sales volumes at 51TJ/day. APA has undertaken a maintenance program at Orbost Gas Processing Plant (OGPP) from 11 April to 17 April 2021. During the six days, the plant shut its operations and restarted production on 17 April 2021. Athena Gas Plant is getting ready to start production in 1QFY22. The plant is 70% completed and expected to contribute significantly towards the production of gas and revenues. 

1HFY21 Financial Highlights: APA has registered a decline in its revenue to $1,279.44mn in 1HFY21 against $1,298.10mn in 1HFY20. The company has incurred a loss of $11.70mn in 1HFY21. The company has reported a decline in its cash balance to $806.80mn as of 31 December 2020 against $1,172.77mn as of 30 June 2020. The company has reported a decrease in its total liabilities to $11,935.48mn as of 31 December 2020 against $12,783.31mn as of 30 June 2020.

Financial Highlights (Source: Analysis by Kalkine Group)

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

Outlook: APA expects its EBITDA for FY21 to be in a range of $1,625mn to $1,665mn. Moreover, the company expects its net interest expense to be in a range of $490mn - $500mn. The company expects its growth capital expenditure to exceed $1bn over FY21-FY23.

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 APA gave a return of ~-7.97% in the last one month and a return of ~-2.53% in the last three months. The current market capitalisation of APA stands at ~$10.86bn as of 31 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$8.990~$11.820. We have valued the stock using the 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 premium as compared to its peer average, considering a decline in its total liabilities as of 31 December 2020 and a significant growth opportunity in energy markets to 2040. For this purpose, we have taken peers AusNet Services Ltd (ASX: AST), Cooper Energy Ltd (ASX: COE), Peninsula Energy Ltd (ASX: PEN), to name a few. Considering a strong demand for transportation capacity, agreement with Origin Energy, current trading levels and valuation, we recommend a “Buy” rating on the stock at the current market price of $9.23, up by ~0.217% as of 31 May 2021.

APA Daily Technical Chart, Data Source: REFINITIV

Incitec Pivot Limited

IPL Details

Dividend Declaration: Incitec Pivot Limited (ASX: IPL) is engaged in the manufacture and distribution of industrial explosives, industrial chemicals, and fertilisers. IPL has declared a dividend of $0.010 for its shareholders. The ex-date for the dividend is on 31 May 2021, and the payment date will be on 2 July 2021. 

Business Updates: The company has recently reported the coal thickness and permeability through the drilling program from its joint venture Central Petroleum Limited (Central). Central has reported drilling of three pilot wells and confirmed net coal of between 26m and 28m across the three coal seams of Walloon coal measures. 

IPL’s business got impacted due to a coupling failure on the refrigeration compressor at its Waggaman plant after it restarted in mid-April till 8 May 2021. The company is prioritising restarting the plant on an immediate basis. IPL expects an impact of $26mn-$33mn in its NPAT in FY21 from the initial trip to the expected restart of the plant.

Off-Take Agreement to Boost Revenues: IPL’s subsidiary Incitec Fertilisers Pty Ltd (IPF), entered an off-take agreement with Perdaman Chemicals and Fertilisers Pty Ltd (Perdaman). IPL is committed to taking up to 2.3mn tonnes per annum of granular urea fertiliser from Perdaman’s proposed urea plant at Karratha in Western Australia. The agreement is subject to a condition to be satisfied within 18 months from the execution of the agreement. The primary requirement for Perdaman is to obtain financing for the construction of the new plant. IPF secured an opportunity to supply urea for Australia’s customers and expand sales in global markets. 

1HFY21 Financial Highlights: IPL has registered a decline in revenue to $1,724.1mn in 1HFY21 against $1,847.9mn in 1HFY20. The company has seen a decrease in profits to $36.4mn in 1HFY21 against $64.6mn in 1HFY20. IPL has witnessed a decline in its liquidity position with cash balance at $124mn as on 31 March 2021 against $554.6mn as on 30 September 2020. The company has seen a decline in its non-current liabilities to $2,435.3mn as of 31 March 2021 against $2,758.2mn as of 30 September 2020.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company is mainly engaged in the production of chemicals and fertilisers. Thus, any machine breakdown may lead to lower production and impact the financials of the company. Further, the company is exposed to adverse change in foreign exchange prices, which may affect the financials of the company. 

Outlook: IPL is positive among all its sectors. IPL expects DNA volumes to grow in 2HFY21 on the back of mine recoveries and technology driven market share gains. Similarly, volumes from Quarry & Construction may see a mid-single digit growth in 2HFY21 on the back of recovery from Covid-19 slowdown. Due to favorable gas economics, recovery in coal demand can be seen in 2HFY21. 

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 IPL gave a return of ~-13.96% in the last one month and a return of ~-0.43% in the last six months. The current market capitalisation of IPL stands at ~$4.48bn as of 31 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$1.807~$2.980. We have valued the stock using the 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 a decline in revenue and profits in 1HFY21 and a further impact in NPAT for FY21 due to machine breakdown. For this purpose, we have taken peers Salt Lake Potash Ltd (ASX: SO4), Secos Group Ltd (ASX: SES), Orica Ltd (ASX: ORI), to name a few. Considering the company has declared a dividend for its shareholders, off-take agreement with Perdaman, decline in non-current liabilities, current trading levels and valuation, we recommend a “Buy” rating on the stock at the current market price of $2.28, down by ~1.299% as on 31 May 2021.

IPL Daily Technical Chart, Data Source: REFINITIV

St Barbara Limited

SBM Details

Change in Substantial Holding: St Barbara Limited (ASX: SBM) is engaged in gold production in Australia. The company’s assets include the Leonora Operations in Western Australia, the Simberi Operations in Papua New Guinea, and the Atlantic Gold Operations in Nova Scotia, Canada. SBM has reported a change in the interest of a substantial holder. L1 Capital Pty Ltd has increased its holding to 6.04% against its previous holding of 5.0%. 

Expansion Plans Underway: SBM is mainly focused on expanding its operations through implementing strategies for each of its operations. At Lenora operations, SBM is reviewing its geological models and generating new resources model. Moreover, pit optimisation is completed for Jasper Flat, Jasper Hill, Trevor Bore, Tower Hill, Harbour Lights and Gwalia. SBM has completed its sulphite feasibility study at Simberi. The company expects a mine life of ~11 years including oxides in FY22 and FY23 with a capital expenditure of US$170mn and a payback period of ~3 years.  

3QFY21 Business Highlights: SBM has registered a decline in gold production to 82Koz in 3QFY21 against 92Koz in 3QFY20. Likewise, SBM has reported a decrease in gold sales to $71Koz in 3QFY21 against 99Koz in 3QFY20. The company has seen an increase in gold price realisation to $2,247/oz in 3QFY21 against $2,123/oz in 3QFY20. The company has seen a decline in its cash balance to $100mn as on 31 March 2021 against $320mn as on 31 March 2020.

Quarterly Gold Production (Source: Company Reports)

Key Risks: The company is mainly engaged in gold production. Thus, any fluctuation in gold prices may impact the financials of the company. The company deals in multiple currencies. Thus, any adverse change in foreign exchange prices may affect the financials of the company. 

Outlook: The company has provided updated guidance on its cost and production for FY21. SBM expects the gold production to be in a range of 100Koz-110Koz at an AISC (All-In Sustaining Cost) between $958-$1,050/oz for its Atlantic operations. Lenora operations are expected to produce gold in a range of 150Koz-160Koz with an AISC between $1,815-$1,950/oz for the same period. Moreover, Simberi operations expect to produce gold in a range of 80Koz-90Koz at an AISC of $1,730-$2,030/oz for FY21.

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 SBM gave a return of ~3.25% in the last one month and a return of ~-6.15% in the last three months. The current market capitalisation of SBM stands at ~$1.34bn as of 31 May 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$1.705~$3.980. We have valued the stock using the 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 median, considering a decline in gold production in 3QFY21 and a decline in cash balance as on 31 March 2021. For this purpose, we have taken peers Ramelius Resources Ltd (ASX: RMS), Calidus Resources Ltd (ASX: CAI), Regis Resources Ltd (ASX: RRL), to name a few. Considering the company has seen an increase in gold price realisation in 3QFY21, expansion plans for each of its operations, current trading levels and valuation, we recommend a “Buy” rating on the stock at the current market price of $1.905, up by ~0.527% as on 31 May 2021.

SBM Daily Technical Chart, Data Source: REFINITIV 

Southern Cross Media Group Limited

SXL Details

Trading Update: Southern Cross Media Group Limited (ASX: SXL) is a leading media company that reaches more than 95% of the Australian population through its radio, television, and digital assets. In a recent trading update, the company informed that its audio revenue is growing, supported by a decent increase in digital audio listening and resulting monetisation. The company also informed about the ongoing TV Affiliation with multiple workstreams progressing to ensure a seamless transition. The company has continued its focus on controlling its cost and its FY21 Non-Revenue Related costs is now forecasted to be around $250 million - $255 million (ahead of guidance of $255 million - $260 million).

H1FY21 Results Highlights: For H1FY21, the company reported revenue of $259.2 million, down by 15.9% on pcp. The company reported NPAT of $32.5 million, up 59.3% on pcp, mainly driven by 23.6% YoY decline in expenses, reflecting operational cost savings, coupled with temporary government support. Over the period, the company reduced net debt to $66 million, 49.5% down on 30 June 2020.

Net Income Trend; Analysis by Kalkine Group

Outlook: As per the recent trading update, the company expects its FY21 EBITDA to be in the range of $118 million - $125 million. Net Debt is expected to be around $55 million - $65 million. With expanding digital Audio revenue pool, the company seems well placed to take a leading role in the deployment of new audio products and services. The company is going to recommence paying dividends with payment of FY21 final dividend in October 2021, subject to no material adverse change in advertising markets.

Key Risks: The company operates in a highly competitive environment. Hence, any change in the strategy of a competitor could impact the company’s business. Further, any fluctuation in the consumer trends could also impact the company’s operations and its business.

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: Over the last three months, the stock has corrected by 20.25%. The stock is currently trading below the average 52-week’s price level band of $1.400-$2.92. We have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). We believe that the company can trade at a slight premium to its peer average P/E (NTM trading multiple), considering the reducing net debt, rising bottom line, and growing audio revenue. We have taken peers like Nine Entertainment Co Holdings Ltd (ASX: NEX), HT&E Ltd (ASX: HT1), and Seven West Media Ltd (ASX: SWM). Considering the reduced expenses in H1FY21, continued focus on cost reduction, modest outlook, current trading level and valuation, we give a “Buy” recommendation on the stock at the closing price of $1.835, down by 1.872% as on 31 May 2021.

SXL 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.