Newcrest Mining Limited
NCM Details
Appointment of New CFO: Newcrest Mining Limited (ASX: NCM) is engaged in the exploration, development, mining, and sale of gold. Recently, the company has appointed Ms Sherry Duhe as Chief Financial Officer (CFO), who will be replacing Gerard Bond. As per the recent technical report for Red Chris, the company has completed 1,477 drill holes and test pits, and 487 core holes (287,535 m) support the Mineral Resource estimates from the Texasgulf, American Bullion, bcMetals, Imperial, and Newcrest drill programs.
Acquisition of Pretium Resources: NCM has inked an agreement for the acquisition of all of the issued and outstanding common shares of Pretium Resources Inc at a consideration of C$18.50 per share to the shareholders of Pretium Resources Inc. The said consideration comprises cash and Newcrest shares, and Pretivm shareholders would be able to elect either C$18.50 in cash or 0.80847 Newcrest shares per Pretivm share.
- The acquisition is subject to the approval of 66 2/3% of Pretivm shareholders, the Supreme Court of British Columbia, and regulatory approvals, which include approval under the Investment Canada Act.
- NCM believes that the acquisition would add a Tier 1 large scale, long-life, low-cost mine to its portfolio of Tier 1 assets and will instantly increase its gold production by >300koz pa (~15%) to well above 2Moz.
- The transaction is likely to be completed in Q1CY22.
Q1FY22 Financial and Operational Highlights:
- For the quarter ended 30 September 2021, the company recorded gold and copper production of ~396koz and ~25kt, respectively, which was in line with the expectations. The gold production was down by 27% against the previous quarter due to lower mill throughput rates at Cadia, Lihir and Telfer.
- AISC for the quarter stood at $1,270/oz, which was higher than the prior quarter, indicating lower gold and copper sales volumes, higher production stripping at Lihir with increased waste mined, and a lower realised copper price.
Gold & Copper Production (Source: Analysis by Kalkine Group)
Key Risks:
- Commodity Price Risk: The company earns a major portion of revenue from the production and sale of gold; hence any adverse movement in the prices of gold could impact the operational and financial health of the company.
- Regulatory Risk: NCM is exposed to a more complex regulatory environment; any failure in compliance could lead the business to fines, penalties, etc.
Outlook:
- The company is optimistic that the production of gold and copper will increase in December 2021 quarter.
- For FY22, NCM anticipates gold production in the range of 1,800 – 2,000koz and copper of between 125 – 130kt.
- NCM is likely to release 1HFY22 results on 9 February 2022.
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: In the past one and six months, the stock of NCM has been corrected by ~4.49% and ~16.15%, respectively. The stock of NCM is trading at below its 52-week low-high average of $21.850 - $29.270, respectively. The stock has been valued using an EV/Sales 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/Sales multiple, considering the COVID-19 disruptions, and volatility in the gold prices, etc. For the purpose of valuation, peers such as Northern Star Resources Ltd (ASX: NST), Evolution Mining Ltd (ASX: EVN), Gold Road Resources Ltd (ASX: GOR), and others have been considered. Considering the indicative upside in valuation, decent liquidity position, deleveraged balance sheet, synergies from the recent acquisition, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $23.620, down by ~2.316% as on 30 November 2021.
NCM Daily Technical Chart, Data Source: REFINITIV
Bank of Queensland Limited
BOQ Details
Change in Directors Interest: Bank of Queensland Limited (ASX: BOQ) banking, financial and related services. On 15 November 2021, Miyuki (Mickie) Rosen has made a change to holdings in the bank by acquiring 10,000 ordinary shares at a consideration of $85,000.
Sale of Stakes:
- As announced on 28 October 2021, the bank wrapped up the sale of its interest in St Andrew’s Insurance (St Andrew’s) to Farmcove Investment Holdings at a consideration of $23 million.
- The said transaction is likely to result in an indicative post-tax statutory loss on sale of around $26 million and be broadly neutral to BOQ’s Common Equity Tier 1 ratio.
FY21 Financial and Operational Highlights:
- For the year ended 31 August 2021, the bank recorded cash earnings after tax of $412 million as compared to $225 million in FY20.
- Net interest income (NII) for the year stood at $1,128 million against $986 million in FY20. The bank wrapped up the capital raising of $1.35 billion for financing the acquisition of ME Bank.
- CET1 for the year stood at 9.80% as compared to 9.78% in FY20, and for FY22, the bank expects CET1 to remain well above at the top end of the target range of 9 – 9.5%.
NII & Cash Earnings (Source: Analysis by Kalkine Group)
Key Risks:
- Credit Risk: The bank is exposed to risk arising from the failure by counterparties in fulfilling their contractual obligations.
- Regulatory Risk: BOQ is exposed to a more complex regulatory environment as it deals in public money. Thus, any failure could lead the business to fines, penalties, etc.
Outlook:
- During FY22, the bank would be focused on achieving quality sustainable, profitable growth and delivering positive jaws.
- The bank is expecting capital investment spend of around $115 - $120 million, including ME Bank, with integration costs of $70 - $80 million.
- The bank is likely to conduct the 2021 Annual General Meeting on 7 December 2021 and has scheduled to release 1HFY22 results on 28 February 2022.
Valuation Methodology: P/BV 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 BOQ is trading below its 52-week low-high average of $7.263 - $9.840, respectively. In the past one and three months, the stock of BOQ has been corrected by ~12.15% and ~18.28%, respectively. The stock has been valued using a P/BV 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/BV multiple, considering the COVID-19 disruptions, and rising NPA, etc. For the purpose of valuation, peers such as Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Virgin Money UK PLC (ASX: VUK), and others have been considered. Considering the indicative upside in valuation, growing NII, increasing cash earnings, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $7.640, down by ~1.547% as on 30 November 2021.
BOQ Daily Technical Chart, Data Source: REFINITIV
CIMIC Group Limited
CIM Details
Update on IPO of Ventia: CIMIC Group Limited (ASX: CIM) provides construction, mining and operation and maintenance services to the infrastructure. As announced on 15 November 2021, the company notified the market with the initial public offering (IPO) of Ventia Services Group, wherein CIM advised that the IPO will proceed at a final offer price of $1.70 per share.
Series of Contracts Secured by Group Companies
- The group company UGL has secured a long-term maintenance contract with Chevron Australia, which is likely to generate revenue of around $40 million per annum.
- As announced on 3 November 2021, Thiess won a three-year $A220 million contract renewal to continue mining services at PT Wahana Baratama Mining’s (Wahana) coal mine in South Kalimantan, Indonesia.
- The group company CPB Contractors secured a contract to build the new 39-storey premium commercial development above the north entrance to Sydney Metro’s Pitt Street Station.
Financial and Operational Highlights for 9MFY21:
- Despite the challenges posed by the COVID-19 pandemic, the company recorded strong operational performance in 9MFY21, evident by revenue growth of 6.8% to $7.1 billion, supported by the growth in Australian Construction and Services.
- NPAT for the period amounted to $303 million as compared to $306.6 million in 9MFY20. In addition, EBITDA, PBT, and NPAT margins were resilient at 9.6%, 5.1% and 4.3%, respectively.
Revenue Trend (Source: Analysis by Kalkine Group)
Key Risks:
- Contract Pricing Risk: The company’s operational and financial performance could be impacted by changes in the pricing of the ongoing contracts.
- Stiff Competition: CIM operates in a very competitive environment, and the rising market share of peers in the industry could lead the business to operational risk.
Outlook:
- For FY21, the company expects NPAT in the range of $400 million to $430 million. However, this is subject to market conditions and excluding any one-off items such as the potential Ventia IPO.
- As on 30 September 2021, the total future pipeline of relevant tenders to be bid on / be awarded was over $450 billion, which include over $100 billion of PPP opportunities.
- The company is likely to release FY21 results on 8 February 2022.
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: As on 30 September 2021, the company had a decent liquidity of $4.0 billion. In the past one and three months, the stock of CIM has been corrected by ~7.42% and ~12.81%, respectively. The stock of CIM is trading at below its 52-week low-high average of $16.860 - $27.510, respectively. The stock has been valued using a 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, etc. For the purpose of valuation, peers such as Monadelphous Group Ltd (ASX: MND), Service Stream Ltd (ASX: SSM), SRG Global Ltd (ASX: SRG), and others have been considered. Considering the indicative upside in valuation, significant contracts secured by group companies, decent liquidity position, optimistic outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the current market price of $18.060, as on 30 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.
CIM Daily Technical Chart, Data Source: REFINITIV
Ansell Limited
ANN Details
Recent Business Update: Ansell Limited (ASX: ANN) manufactures protective industrial and medical gloves. The company has two business segments, namely Industrial and Healthcare. As published on 29 November 2021, ANN engaged in a daily share buy-back of 30,000 shares at a consideration of A$964,464.
FY21 Financial Performance
- Double-Digit Top-Line Growth: In FY21, total reported sales stood at US$2,026.9 million, up by 25.6% YoY, due to resilient organic growth of 22.5% and contribution from HGBU (+34.8% YoY) and IGBU (+7.1% YoY).
- Expanding Operating Margins: ANN registered US$338.0 million in EBIT (+56.0% YoY) and US$246.7 million in profit attributable (+57.5% YoY). EBIT margins widened by 330 bps to 16.7%, primarily driven by increased production volumes, favourable pricing/mix benefit, and SG&A operating leverage.
- Temporary Weakness in Cash Flows: Cash flows from operations stood at US$49.2 million at a cash conversion of 60.9%. The temporary weakness is primarily owed to capex investment and unfavourable working capital movements.
- Decent Financial Position: ANN exhibits a solid financial position with significant flexibility for strategic investments and expansion. Liquidity stands at circa US$464 million in cash and committed undrawn bank facility. Working capital inclined to support strong growth prospects.
FY21 Financial Snapshot, Analysis by Kalkine Group
Key Risks and Challenges
- Unfavourable Cash Flow Moments: The drainage in cash balances was vastly attributed to high capital expenditure and a substantial increase in working capital management. ANN shall hold tight on working capital, considering potential threats from the new variant of COVID-19.
- High Forex Exposure: Considering global operations, ANN is subject to volatilities in currency markets.
Outlook
- Guidance: ANN expects to clock EPS at a range of 175 – 195 US cents in FY22. Further, it is estimated that new interest expense will fall in the range of $20.0 million - $21.0 million at an effective tax rate of 22.0% – 23.0% in FY22.
- Investment Focus: ANN is increasing R&D spending for better sustainable materials, holding multi-risk protection. ANN seeks to encroach in emerging markets by developing local manufacturing and sales headcounts.
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 ANN gave a negative return of ~13.866% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $30.130 - $44.070. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering diluted cash balance and increased net debt. For valuation, a few peers like Somnomed Ltd (ASX: SOM), Cleanspace Holdings Ltd (ASX: CSX), Lumos Diagnostics Holdings Ltd (ASX: LDX), and others have been considered. Given ANN’s commitment to lead PPE and Healthcare services, geographical expansion, broadened operating metrics, transformation program in place, current trading levels, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the closing market price of $32.020, down by ~1.538%, as of 30 November 2021.
ANN Daily Technical Chart, Data Source: REFINITIV
Adore Beauty Group Limited
ABY Details
Q1FY22 Business Performance: Adore Group Limited (ASX: ABY) is engaged in online retailing third-party beauty and personal care products in Australia and New Zealand.
- Revenue Update: Revenue inclined by 25% PcP and stood at $63.8 million. ABY held strong consumer retention with 63% PcP growth in returning customers. In addition, active customers surged to 874k, up by 24% on a PcP basis.
- Financial Positioning: ABY stands well-funded with a debt-free financial position, delivering flexibility to sustain a growing business.
- Strategic Initiatives: ABY is executing strategic initiatives – a building owned marketing channels & community, scaling mobile app, and expanding loyalty program.
Key Updates from AGM Presentation
- Market Standing in Online Beauty: Beauty and personal care have clocked the $11 billion market in Australia. Despite COVID-19’s aggressive contribution in accelerating the shift from traditional retail to online retail, Australia remains in the early stage of the online adoption curve.
- Strategic Developments: In FY21, ABY invested in owned marketing channels to scale brand awareness to 58%. ABY’s newly launched mobile app and loyalty program remains to be the key to increasing customer retention.
FY21 Financial Snapshot, Analysis by Kalkine Group
Key Risks and Challenges: Any structural shift may significantly affect the top-line with changing consumer behaviour. Online platforms are incredibly competitive and hence may result in price wars in the case of undifferentiated products.
Outlook
- Guidance: ABY expects to maintain a 2% to 4% EBITDA margin during the short to medium term while adhering to reinvestment plans for market penetration. ABY’s first private lable brand is expected to launch in Q3FY22.
- Market Scenario: Australia’s beauty and personal care (BPC) market are valued at $11.2 billion, with the potential to grow at 3.8% CAGR until 2024. Online BPC sales are expected to grow at 26% CAGR until 2024 and account for 11.4% of total industry sales.
- Growth Strategy: ABY is focusing on cementing its online market leadership, and scale its mobile application, range expansion, and loyalty program. During Q1FY21, the Beauty IQ podcast clocked over 3 million downloads, milti virtual loyalty events were hosted, and Bite-Sized beauty podcast was launched.
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: As announced on 2 November 2021, ABY made changes to its board of directors with the appointment of Marina Go as Chair of the Board and the retirement of Justin Ryan as Chair of the Board. The stock of ABY gave a negative return of ~31.538% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $3.310 - $6.740. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). Given favourable market opportunities, strong fundamentals, and an exponentially increasing customer base, the company might trade at a slight premium to its peers. For valuation, peers such as Temple & Webster Group Ltd (ASX: TPW), Redbubble Ltd (ASX: RBL), Mydeal.Com Au Ltd (ASX: MYD) and others are considered. Given the growing top-line, online BPC market growth forecasts, resilient cash flows, current technical levels, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the market price of $4.320, as of 30 November 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.
ABY 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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