BHP Group Limited

BHP Details

Increase in Cash Offer: BHP Group Limited (ASX: BHP) is engaged in the exploration, production and processing of minerals, mainly iron ore, copper and manganese ore. Recently, the company has increased its all-cash offer for the acquisition of Noront Resources Limited by BHP Western Mining Resources International Pty Ltd to C$0.75 per share as compared to C$0.55 per share of the previous offer.

• The new offer indicates a 36% premium to its previous offer, a 7% premium to the Wyloo offer and a 213% premium to Noront’s unaffected price.
• Noront supports the company’s improved offer and recommends shareholders to receive the cash consideration offered.

Q1FY22 Financial and Operational Summary:

• Rise in Petroleum Production: During the quarter, the company produced 27.5 MMboe of petroleum, which indicates a rise of 3% over Q1FY21 because of increased production from Ruby and higher seasonal gas demand at the Bass Strait.
• Fall in Copper Production: As a result of the commencement of the planned smelter maintenance campaign, the company witnessed a fall of 9% in copper production to 376.5kt.
• Merger of Petroleum Business: The company announced a merger to combine its Petroleum business with Woodside Petroleum Ltd by an all-stock merger in August 2021. The proposed merger is likely to develop a global top 10 independent energy company by production and be the largest energy company on the Australian Stock Exchange.
• Regulatory Approval for Merger: However, the merger is subject to confirmatory due diligence, negotiation and execution of full form transaction documents and satisfaction of conditions precedent including required approvals.

FY21 Financial Highlights:

• Increase in Revenue: For the year ended 30 June 2021, the company reported revenue amounting to US$60,817 million as compared to US$42,931 million in FY20. Underlying EBITDA for the year amounted to US$37.4 billion against, indicating a margin of 64% backed by the company’s operational excellence.
• Rise in Operations Inflows: Backed by the stronger iron ore and copper commodity prices, as well as strong operational performance across the Group’s portfolio, the company’s net operating cash inflows increased by US$11.5 billion to US$27.2 billion.

Revenue (Source: Analysis by Kalkine Group)

Key Risks:

• Commodity Price Risk: The company’s operational and financial performance could be impacted by any adverse movement in the commodity prices.
• Foreign Currency Risk: BHP is exposed to a risk arising from the unfavourable movement in the foreign exchange as it has operations in multiple geographies.

Outlook:

• For FY22, the company expects petroleum and copper production in the range of 99 – 106 MMboe and 1,590 – 1,760kt, respectively. BHP anticipates producing iron ore in the ambit of 249 – 259 Mt.
• BHP expect synergies of over US$400m per annum. The company is also focused on growing its value and proposition for the future via enhancing its leverage towards the market requirements.
• The company is likely to conduct the 2021 Annual General Meeting on 11 November 2021.

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 company closed FY21 with a strong balance sheet backed by a fall in net debt to US$4.1 billion. As on 30 June 2021, the cash and cash equivalents stood at US$15.2 billion as compared to US$13.4 billion as on 30 June 2020. The stock is trading below its 52-week low-high average of $33.730 - $54.550, respectively. The stock of BHP has been corrected by ~30.97% and ~22.59% in the past three and six months, respectively. 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 low current ratio, high debt to equity ratio, fall in copper production and forex risk. For this purpose of valuation, peers such as Fortescue Metals Group Ltd (ASX: FMG), Rio Tinto Ltd (ASX: RIO), South32 Ltd (ASX: S32), and others have been considered. Considering the expected upside in valuation, increasing topline, merger of the petroleum business, growing cash from operations, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $36.580, down by ~1.189% as on 29 October 2021.

BHP Daily Technical Chart, Data Source: REFINITIV 

Northern Star Resources Ltd

NST Details

Key Takeaways from Q1FY22: Northern Star Resources Ltd (ASX: NST) is engaged in the production and exploration of gold and other minerals. During the quarter, the company recorded gold sales of 386,160 oz at an all-in sustaining cost (AISC) of $1,594/oz.

• The average realized price for the quarter was $2,345/oz for sales revenue of $848 million, and cash earnings were $165-$175 million.
• The company used funds received from the sale of Kundana assets to Evolution (ASX: EVN) for cash consideration of $400 million and reduced its bank debt to $262 million.
• NST’s key growth projects are currently progressing in line with its strategy to become a 2Mozpa producer by FY26.

FY21 Financial Summary:

• Increase in Revenue: During FY21, the company reported revenue amounting to $2.76 billion against ~$1.97 billion, reflecting a growth of 40% backed by a rise of 3% in average realised gold price per ounce of $2,273/oz and a 33% increase in gold sales.
• Rise in Gold Production: The company witnessed a rise of 13% in annualised gold recovery to 1,605,405oz as compared to 1,425,591oz in FY20 at an annualised all-in sustaining cost (AISC) of $1,483/oz.
• Solid Cash Earnings: NST posted a growth of 10% in the cash earnings to $648 million as compared to $588 million in FY20, which indicates the strength of the underlying business.

Revenue & Cash Earnings (Source: Analysis by Kalkine Group)

 Key Risks:

• Price Risk: NST’s operational and financial health could be impacted by any adverse movement in the gold prices, as it derives a major portion of revenue from gold.
• Environmental Risk: NST is exposed to risk arising from a change in climate, as the company may require suspending mining operations due to bad weather and climate.

Outlook:

• For the upcoming year, the company is expecting gold production in the range of 1,550-1,650koz at an AISC of between $1,475-$1,575/oz.
• In addition, the company is targeting profitable production growth to 2Moz per annum by FY26.
• The company has scheduled conduct the 2021 Annual General Meeting on 18^th November 2021.

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:  During FY21, the company declared a fully franked final dividend of 9.5cps, which took the full-year dividend to 19 cps. The company also introduced a new dividend policy, which is targeting a total annual dividend payment of 20-30% of Cash Earnings. As on 30 September 2021, the cash and bullion balance of the company stood at $756 million against $803 million as on 30^th June 2021. The stock is trading below its 52-week low-high average of $7.955 - $17.030, respectively. The stock of NST has been corrected by ~8.12% and ~10.65% in the past three and six months, respectively. 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 premium to its peers’ median P/E multiple, considering the growing revenue, increasing gold production, and decent liquidity position. For this purpose of valuation, peers such as Evolution Mining Ltd (ASX: EVN), IGO Ltd (ASX: IGO), Newcrest Mining Ltd (ASX: NCM), and others have been considered. Considering the expected upside in valuation, increasing topline, solid cash earnings, consistent dividend payment, decent outlook, and current trading levels, we recommend a ‘Buy’ rating on the stock at the closing price of $9.240, down by ~2.635% as on 29 October 2021.

NST Daily Technical Chart, Data Source: REFINITIV  

Kogan.com Limited

KGN Details

Q1FY22 (ending September 2021 quarter) Highlights: Kogan.com Limited (ASX: KGN) is a portfolio of retail and services businesses comprising Kogan Retail, Kogan Mobile, Kogan Internet, Mighty Ape, and others. KGN earns commission-based revenue from verticals - Kogan Mobile, Kogan Internet, Kogan Insurance, etc. and seller-fee-based revenue from Kogan Marketplace.

• The company reported a ~2% QoQ rise in gross sales to ~$330.5 million and ~31.6% QoQ rise in gross profit in Q1FY22.
• During Q1FY22, KGN scaled up Kogan Marketplace and Kogan First further leading to improved logistics and customer service. The acquisition of Mighty Ape drove integration synergies and led to growth in the customer base.
• The company closed inefficient overflow warehouses which reduced the inventory levels & warehousing costs during Q1FY22. This cost reduction led to an average saving of $0.8 million per month in variable cost in Q1FY22 versus Q4FY21.

Revenue & Net Income Trend from FY18-FY21; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 supply chain issues, online retail competition, Australian retail & economic environment volatility. KGN also faces inventory management issues and dependence on major suppliers and service providers to source products.

Outlook:

• The company is continuously investing in marketing to build and scale the Kogan First membership program.
• There is a robust pipeline of new sellers for the Kogan Marketplace, and continuous improvement is being made in the proprietary marketplace platform.
• KGN expects synergy benefits to flow through the acquisition of Might Ape in FY22.
• KGN is investing in Exclusive Brands inventory to fulfil the growing customer demand.
• The company is conducting on online AGM (Annual General Meeting) on 25 November 2021.

Valuation Methodology: P/CF 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 KGN gave a negative return of ~4.33% in the past three months and a negative return of ~10.28% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $8.700 - $23.980.  The stock has been valued using the Price to Cash Flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade some discount than its peers’ median P/CF multiple, considering its higher debt-to-equity ratio & lower NPAT in FY21, lower adjusted EBITDA & gross profit in Q1FY22 vs Q1FY21, and continuing supply chain risks due to COVID-19 disruptions. For this purpose of valuation, few peers like Booktopia Group Limited (ASX: BKG), Redbubble Limited (ASX: RBL), JB Hi-Fi Limited (ASX: JBH), and others have been considered. Considering the current trading levels, growth in gross sales and customers in Q1FY22, continued investment in platform and technology, plans to grow customers in FY22, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $9.910, as of 29 October 2021, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

KGN Daily Technical Chart, Data Source: REFINITIV 

Infomedia Limited

IFM Details

CEO & MD Resignation: Infomedia Limited (ASX: IFM) provides a platform for service, parts, data analytics, and e-commerce to automotive manufacturers and dealers. IFM has offices in the US, the UK, Sydney, & Melbourne. On 18 October 2021, IFM cancelled 1.92 million share appreciation rights held by MD & CEO, Jonathan Rubinsztein for nil consideration due to his resignation. The company is looking for a replacement and has appointed Jim Hassell, a Non-Executive Director, as the interim CEO with immediate effect.

• The company won new deals with Ford & Mazda (EMEA), Audi (AU), & BMW (APAC & SE Asia), during the year. The top 20 contracts account for $35 million worth of TCV and will underpin FY22 growth.
• The company completed the acquisition of SimplePart, the US-based aftersales e-commerce platform, extended its integrated platform and reorganised the sales structure during the year.
• IFM declared an increase of 3% YoY from 4.30 cps in FY20 to 4.45 cps in FY21.
• Cash EBITDA declined by 4% YoY from $21.3 million in FY20 to $20.4 million in FY21 due to costs incurred to innovate the NextGen platform and acquisition-related with the SimplePart transaction.

Cash Receipts from Customers Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological changes, delay in project installations due to COVID-19, competition from peers, forex rate changes, and integration risks.

Outlook:

• IFM forecasts revenue guidance of ~$117-~$123 million for FY22, up by more than 20% on pcp given no negative foreign exchange movements and negative impact of COVID-19.
• The company is positive of a double-digit growth rate in FY22 due to business momentum and full-year revenues contribution of SimplePart. It expects opportunities in the automotive industry due to the structural shifts.
• The company will conduct an online AGM (Annual General Meeting) 2021 on 16 November 2021.

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 IFM gave a negative return of ~1.07% in the past three months and a negative return of ~12.38% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.255 - $2.020. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/Sales multiple, considering its lower Cash EBITDA, statutory NPAT, slight increase in the debt-to-equity ratio, higher development costs, integration risk, and data security risks. For this purpose of valuation, few peers like Praemium Limited (ASX: PPS), Hansen Technologies Limited (ASX: HSN), Envirosuite Limited (ASX: EVS), and others have been considered. Considering the current trading levels, decent financial results in FY21, higher FY22 revenue guidance, and newly signed deals in FY21, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing price of $1.380, as of 29 October 2021.

IFM Daily Technical Chart, Data Source: REFINITIV  

Adore Beauty Group Limited

ABY Details

Q1FY22 Financial and Operational Summary: Adore Beauty Group Limited (ASX: ABY) is engaged in online retailing of third-party beauty and personal care products in Australia and New Zealand. For the quarter ended 30 September 2021, the company recorded a growth of 25% in revenue to $63.8 million, aided by the growth of 24% in active customers to 874k. During the period of two years (Q1FY20- Q1FY22), the company posted a CAGR of 60% in topline.

• Strong Customer Retention: The company possesses strong customer retention with returning customer growth of 63% over pcp. ABY is being benefited from the ongoing structural shift to online, which has been further enhanced by the recent COVID-19 lockdowns.
• Deleveraged Balance Sheet: ABY seems to be well-financed with nil debt, which provides flexibility to enhance business growth.

Market Scenario:

• As per the company’s report, the Australian Beauty and personal care (BPC) market is $11.2 billion, with an expected CAGR of over 3.8% by 2024. In addition, the online BPC sales contribute 11.4% and is likely to grow at a CAGR of more than 26% by 2024.
• The company’s market share of 13% in online BPC sales indicates significant upside within the market in which it operates and showcases an attractive future.

FY21 Financial Highlights:

• Decent Growth in Revenue: During the year, the company outperformed its revenue guidance and posted a growth of 48% to $179.3 million. ABY recorded a CAGR of 57% in revenue during FY19-FY21. The topline growth in FY21 was generated by strong customer retention as well as increasing average order value.
• Rising EBITDA and Improving Marketing Channels: EBITDA for the year amounted to $7.6 million, reflecting a rise of 53% over pcp. ABY is also enhancing its marketing channels, evident by the growth of 273% in Adore Beauty podcast downloads to ~ 2.7 million since launch.

Active Customers (Source: Analysis by Kalkine Group)

Key Risks:

• Competition from Peers: The company’s business could be impacted by the rising market share of peers and changing consumer sentiments.
• Demand and Supply Risk: ABY is exposed to a risk arising from the instability in the demand and supply of products within the markets.

Outlook:

• Looking forward, the company is implementing strongly on strategic initiatives, which includes scaling mobile app, building owned marketing channels and community, enhancing loyalty program.
• The company is expecting to maintain an EBITDA margin in the range of 2-4% in short to medium term.
• ABY has scheduled to conduct the 2021 Annual General Meeting on 12 November 2021.

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 company closed FY21 with a strong balance sheet and cash flow positive business model, evident by a cash balance of $29.0 million as on 30 June 2021. The company is trading below its 52-week low-high average of $3.310 - $6.980, respectively. The stock of ABY has been corrected by ~8.47% and 16.43% in the past three and nine months, respectively. The stock has been valued using 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 premium to its peers’ median EV/Sales multiple, considering the rising revenue, deleveraged balance sheet, and decent liquidity position margin. For the purpose of valuation, peers such as Breville Group Ltd (ASX: BRG), Temple & Webster Group Ltd (ASX: TPW), and Redbubble Ltd (ASX: RBL) have been considered. Considering the expected upside in valuation, rising revenue, growing EBITDA and marketing channel, increasing active customers, deleveraged balance sheet, decent long-term outlook, current trading level, we recommend a ‘Buy’ rating on the stock at the closing price of $4.700, up by ~1.952% as on 29 October 2021.

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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