Northern Star Resources Limited

NST Details

EKJV Exploration Update: Northern Star Resources Limited (ASX: NST) is a leading gold producer with Tier-1 world-class projects located in highly prospective and low sovereign risk regions of Australia and North America. NST has a 51% interest in East Kundana Joint Venture (EKJV). Over the June quarter, the exploration activities at EKJV were focused on the underground drilling at the Pode, Hera and Nugget prospects.

• Detected Significant Intersections: The assay results of the drilling conducted at Hornet, Startrek and Pode have returned significant intersections.
• Future Focus: Moving forward, exploration activities at the EKJV will be focused on extending the Nugget Resource from the newly developed R5975 and R5960 drill drives.

Sale of Kundana Assets: In line with its strategic focus on active portfolio management, the company has recently announced the sale of its Kundana Assets to Evolution Mining Ltd (ASX: EVN) for A$400 million.

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

Met FY21 Guidance: During the June quarter, the company sold 444,012 ounces at an AISC of A$1,459/oz, taking the total gold sold for FY21 to 1.6Moz at an AISC of A$1,483/oz, in-line with FY21 guidance of 1.5- 1.7Moz at an AISC of A$1,390-A$1,520/oz.

Key Risks:

• Fluctuations in Gold Price: The company is exposed to the risks associated with the fluctuations in the prices of gold as it could impact the company’s’ financial results.
• COVID-19 Uncertainties: The COVID-19 pandemic and its associated restrictions could disrupt the company’s operations and cause temporarily delay in work.

Outlook: Looking ahead, the company is focused on simplifying its business and diverting capital to grow the high margin assets. For FY22, the company expects its production to be in the range of 1.55-1.65Moz at AISC of A$1,475- 1,575/oz. Growth capital in FY22 is expected to be in the range of A$230 million.

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 six months, the stock has corrected by 20.46% and is currently trading lower than the average 52-week price level band of $8.990 and $17.03, offering a decent opportunity for accumulation. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). We have taken a slight premium to its peer average P/E (NTM trading multiple), considering the decent June quarter performance, modest outlook, and also taking into account that the company has been commanding a premium in the past 3-years over its peer average. We have taken peers like Evolution Mining Ltd (ASX: EVN), IGO Ltd (ASX: IGO), and Sandfire Resources Ltd (ASX: SFR). Considering the company’s decent production and cost performance in FY21, current trading level and valuation, we give a “Buy” recommendation on the stock at the current market price of $10.22, up by ~0.888% as on 30 July 2021.

NST Daily Technical Chart, Data Source: REFINITIV

Evolution Mining Limited

EVN Details

Acquisition of Assets to Elevate Mungari: Evolution Mining Limited (ASX: EVN) is a leading Australian gold mining company operating high-quality assets that are located in the jurisdictions of Australia and Canada. On 22 July 2021, the company entered into an agreement with NST to acquire the Kundana Operations (100%), a 51% interest in the EKJV, the Carbine Project (100%) and a 75% interest in the WKJV. EVN plans to pay NST A$400 million in cash upon closing of the transaction. It is expected that this transaction will transform Mungari to establish the operation as the fourth cornerstone asset in EVN’s portfolio.

Update on SPP: Following the completion of its A$400 million institutional placement, EVN is now conducting a share purchase plan (SPP) to raise around A$50 million.

• Use of SPP Proceeds: The proceeds of the SPP will be used to fund the acquisition of 100% interest in the Kundana Operations, 51% interest in the East Kundana Joint Venture, 100% interest in certain tenements comprising the Carbine Project and 75% interest in the West Kundana Joint Venture.
• Important Dates: SPP is expected to close on 20 August 2021 and the quotation of new shares is expected on 30 August 2021.

NPAT Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Fluctuation in Commodity Prices: The company is exposed to the risks related to the fluctuations in the prices of gold and copper as it could impact the company’s financial performance.
• Foreign Currency Risks: EVN’s operations are also located in Canada, exposing it to the risks related to foreign exchange fluctuations.

Outlook: Looking ahead, the company is planning to invest in growth projects at Cowal and Red Lake, which will materially increase production and transform the quality of EVN’s asset portfolio. EVN recently provided an updated three-year outlook for group production, costs and capital. As per the company, the production is expected to grow by around 30% to over 900,000 ounces during the three-year period to FY24.

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 9.28% and is currently trading lower than the average 52-week price level band of $3.790 and $6.46, offering investors a decent opportunity for accumulation. We have valued the stock using an EV/Sales 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’s average, considering recently announced acquisitions, capital raising activities and modest outlook. We have taken peers like IGO Ltd (ASX: IGO), Kirkland Lake Gold Ltd (ASX: KLA), Northern Star Resources Ltd (ASX: NST). Considering the expected growth in the company’s production over the next three years, benefits from the recently announced acquisitions, improved profitability margins in H1FY21, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $4.180, down by ~0.948% as on 30 July 2021.

EVN Daily Technical Chart, Data Source: REFINITIV 

PolyNovo Limited

PNV Details

Increasing Revenue Momentum in the US: PolyNovo Limited (ASX: PNV) is a medical device company that designs, develops, and manufactures dermal regeneration solutions using its patented NovoSorb biodegradable polymer technology. On 13 July 2021, the company notified that despite the limited access to US hospitals and surgeons due to COVID-19, it is witnessing increasing revenue momentum in the US and all other major markets. Notably, the company’s US BTM revenue has grown by 49% YoY in FY21. Further, FY21 Australia BTM revenue has increased by 25%.

Key Takeaways from H1FY21 Results Highlights:

• Rise in Total Revenue: For H1FY21, the company reported total revenue of $12.8 million, up from $10.2 million in H1FY20, driven by the rise in product sales.
• Decline in Operating Loss: Due to the rise in revenue, gross margin improvement and cost management, the company was able to reduce its operating loss by 78.9% YoY to $0.2 million.
• Growth Across All Market: In 1HFY21, the company opened 35 new accounts across all direct markets. US BTM sales in 1HFY21 increased a whopping ~41% year over year.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Regulatory and Commercialisation Risk: The company is exposed to risks related to the development of medical devices and commercialising them in the market. These risks include uncertainty of patent protection and proprietary rights and obtaining of necessary regulatory authority approvals.
• Failure of Clinical Trials: The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation and a failure to achieve the desired results may hamper the financial performance of the company.
  

Guidance: Looking ahead, PNV intends to invest its cash flows in expanding its business strategies and research and development programs to commercialise its new products. For FY22, the company expects more than A$5 million from increased patient activity and the addition of further sites. The company expects BARDA trial program revenue to be in the range of $2-$2.5 million in 2HFY21.

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: The stock of the company has been corrected by ~14.25% in the past six months. Currently, the stock has a 52-week’s high and low level of $4.08 and $1.98, respectively. 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 might trade at a slight premium as compared to its peer average, considering a reasonable rise in revenues, higher Sales of NovoSorb® BTM, and geographical expansion. For that purpose, we have considered peers such as Telix Pharmaceuticals Ltd (ASX: TLX), Paradigm Biopharmaceuticals Ltd (ASX: PAR), to name a few. Considering the increasing revenue momentum in the US and all other major markets, decent FY21 BTM performance, modest long-term outlook, and valuation, we recommend a “Buy” rating on the stock at the current market price of $2.25, down by ~0.882% as on 30 July 2021.

PNV Daily Technical Chart, Data Source: REFINITIV

NRW Holdings Limited

NWH Details

New Contracts Obtained: NRW Holdings Limited (ASX: NWH) provides diversified contract services to the infrastructure and resources sector. The Group operates in Civil, Mining, Energy & Technologies, Drill & Blast and Minerals segments.

• On 27 July 2021, NWH declared the grant of works for Stage 3 expansion of the Nammuldi Waste Fines Storage Facility (WFSF). NWH will undertake the Hamersley Iron Pty Limited project work for a contract value of $26.5 million.
• The company will commence the construction work from mid-August 2021 and complete all work by June 2022.
• NWH announced the grant of another project -Gudai Darri Solar Farm Project for a contract value of ~$60 million. NWH will deliver a Solar PV System (34MW) to Rio Tinto Limited at its Gudai Darri mine in Western Australia.

Acquisition Completion: On 24 March 2021, NWH announced the finalised mandatory acquisition of the residual shares in Primero Group Limited (Primero) as per the Corporations Act 2001. As a result, NWH now owns 100% issued share capital of Primero.

1HFY21 Financial Results:

• Increase in Revenue: The company reported an increase in revenue by ~45.19% YoY to $1,137.69 million in 1HFY21. The revenue growth represents the organic growth across business segments and the acquisition of BGC Contracting.
• Fall in NPAT: NWH recorded a fall of 13.11% YoY in NPAT to $29.04 million during the reporting period. The company incurred one-off expenses, including recapitalisation of Gascoyne Resources, the effect of the stoppage of activities at Altura and amortisation of intangibles due to the acquisition.
• Rise in Group EBITDA: The Group EBITDA stood at $132.8 million, up by 14% YoY in 1HFY21.
• Dividend Declared: The company paid an interim dividend of 4 cents per share on 8 April 2021, up by 60% on a pcp basis.

Total Revenue & NPAT Trend for FY16-FY20; (Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The company faced an increase in employment costs and impacted productivity due to COVID-19 majorly on the projects located in the Pilbara region of Western Australia and, to some extent, on the civil projects in South Australia.
• Lower Tendering: The company receives revenue based on the award of new contracts and tenders. Risk assessment of the project at the time of tendering is also essential to factor in.
  

Outlook:

• NWH maintains a revenue forecast in the range of $2.2-$2.3 billion for FY21.
• NWH has a robust order pipeline and expects more infrastructure projects due to the Government priorities given the COVID-19 economic impact. NWH expects tender pipeline and project prospects worth $14.1 billion in the next 12 months.
• Primero currently has a ~$165 million order book and is the preferred EPC contractor status for projects worth $1 billion.
  

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: The stock of NWH gave a positive return of ~15.69% in the past month and a negative return of ~40.73% in the past six months. The stock is currently trading towards lower than the 52-weeks’ average price level of $1.360 - $3.190We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium than its peer median, considering the increase in revenue, NPAT in FY21, award of new contracts and strong project pipeline for FY22. For this purpose, we have taken peers like Southern Cross Electrical Engineering Limited (ASX: SXE), Monadelphous Group Limited (ASX: MND), SRG Global Limited (ASX: SRG). Considering the current trading levels, increase in revenue and EBITDA, tender pipeline, and revenue forecast for FY21, valuation, we give a ‘Buy’ rating on the stock at the current market price of $1.695 as on 30 July 2021, 1:15 PM (GMT+10), Sydney, Eastern Australia).

NWH Daily Technical Chart, Data Source: REFINITIV 

Data#3 Limited

DTL Details

Expected Result for FY21: Data#3 Limited (ASX: DTL) provides hardware and software licences, data center infrastructure and networks through its Product division. The Services division provides consultancy, managed solutions, maintenance contracts and workforce recruitment and contracting services.

• On 19 July 2021, DTL announced ~$36.8 million (unaudited) of expected NPAT, up by 8% YoY for FY21. The result was affected by higher product delivery delays in 2HFY21, due to the computer chip shortages witnessed industry wide. DTL recorded an increased product backlog due to a mix of supply shortages and the usual demand increase for devices in Q4FY21.

1HFY21 Financial Highlights:

• Increase in Revenue: DTL reported a rise of 2% YoY in revenue to $856.73 million in 1HFY21 due to robust public cloud solutions, infrastructure sales, software licensing and project services’ growth. DTL has a recurring revenue of ~62% (total revenue) generated from government contracts and large corporate accounts.
• Rise in NPAT: The NPAT increased to $9.37 million, up by 7.9% YoY in the reporting period.
• Higher Cash Receipts: DTL generated $1,010.66 million in 1HFY21 versus $894.47 million in 1HFY20.
• Higher Dividend: The company paid a fully franked dividend of 5.5 cents per share in 1HFY21 vs 1 cents per share in 1HFY20.

Total Revenue & NPAT Trend for FY16-FY20; (Analysis by Kalkine Group)

Key Risks:

• COVID-19 Impact: The company faces the impact of COVID-19 on the supply of chips for its product devices. DTL expects these shortages to remain the next financial year as well.
• Concentration Risk: DTL faces the risk of dependence on certain key vendors in the Government and corporate sectors for the contracted services and products.

Outlook:

• DTL remains optimistic about delivering its longer-term strategy on the back of no borrowings, robust supplier alliances and customer relationships, expected growth in the Australian IT market.
• DTL estimates a release of ~$3 million profit from the order backlog in FY21 and expects to realise it in FY22.
• DTL expects supply constraints for multiple product sets will remain in FY22. The company will declare the FY21 results on 19 August 2021 and intends to distribute dividends at the usual pay-out ratio.

Valuation Methodology: Price to Earnings 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 DTL gave a negative return of 24.91% in the past three months and a negative return of 17.63% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $4.590 - $7.300. We have valued the stock using the Price to Earnings multiple-based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer mean, considering the decline in the cash balance, higher net operating cash outflows, decline in net assets, and the expected chip shortage in FY22. For this purpose, we have taken peers like Appen Limited (ASX: APX), Hansen Technologies Limited (ASX: HSN), SmartPay Holdings Limited (ASX: SMP), etc., which comes under software & services sector. Considering the increase in cash receipts, revenue, NPAT in 1HFY21, valuation, expected NPAT for FY21, decent long-term outlook, and current trading levels, we give a ‘Buy’ rating on the stock at the current market price of $4.670, down by ~1.891% as of 30 July 2021.

DTL 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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