Evolution Mining Limited

EVN Details

Completion of SPP: Evolution Mining Limited (ASX: EVN) is a gold mining firm with a portfolio of assets located in Tier 1 jurisdictions of Australia and Canada. On 27 August 2021, EVN notified that Director Victoria Binns has acquired 12,660 fully paid ordinary shares for a total consideration of $49,880.40. On 26 August 2021, EVN completed the Share Purchase Plan ("SPP") and raised ~$68 million from the retail shareholders.

• EVN issued 17.63 million new fully paid ordinary shares at $3.85 to the eligible shareholders under the SPP on 27 August 2021. These new shares were expected to trade on the ASX on 30 August 2021 and will rank identical to the company’s existing shares from the time of issue.
• These shares will also receive a final dividend of 5 cents per share (fully franked) for FY21, payable on 28 September 2021.

FY21 Result Highlights:

• Increase in NPAT: EVN posted an increase of 14.5% YoY in the statutory net profit after tax to $345.3 million in FY21.
• Decline in Revenue: EVN reported a decrease in revenue by 4% YoY to $1,864.1 million in FY21 due to a decline in production.
• Decline in Production: The gold production stood at 680,788 oz in FY21 versus 746,463 ounces in FY20.
• Acquired Battle North: In May 2021, EVN acquired the Battle North Gold to fast track the growth plans at Red Lake operations.
• Cowal Development: EVN met a milestone with the Board’s approval to develop the Cowal Underground Mine in July 2021 and a $380 million planned project investment.
• Final Dividend: EVN will pay a fully franked dividend of 5 cents per share and distribute $91.3 million to shareholders on 28 September 2021. The company had notified 31 August 2021 as the record date and 30 August 2021 as the ex-dividend date.

Total Revenue & Net Income from FY19-FY21; (Analysis by Kalkine Group)

Key Risks:

• Gold Price Changes: The company is exposed to the risks related to the change in realised gold prices which may impact the revenue for the period.
• Acquisition Risks: The company acquires firms in other geographies to grow and expand. EVN faces the risk of a lack of synergies /strategic advantages post-integration.

Outlook:

• Evolution estimates the gold production for FY222 to be between 700,000 – 760,000 oz at an All-in Sustaining Cost (AISC) of $1,220 – $1,280 per ounce.
• EVN expects to receive regulatory approval on the Cowal project in the September 2021 quarter.
• At Red Lake, EVN has a clearly defined program to restore the operations for a Canadian gold mine producing 350,000 ounces every year by FY26.

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 EVN gave a negative return of 26.64% in the past three months and a negative return of 23.78% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $3.790 - $6.460. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ mean, considering its increased NPAT, higher fully franked dividend distribution in FY21 and expanded base with Battle North Gold. For the purpose of valuation, few peers like Northern Star Resources Limited (ASX: NST), Panoramic Resources Limited (ASX: PAN), IGO Limited (ASX: IGO), and others have been considered. Considering the current trading levels, increase in statutory NPAT, higher distribution of dividends in FY21, expanded base with the acquisition of Battle North Gold, approval for the Cowal mine development, valuation, we give a ‘Buy’ rating on the stock at the current market price of $3.910, down by 1.512%, as on 31 August 2021.

EVN Daily Technical Chart, Data Source: REFINITIV  

Beach Energy Limited

BPT Details

Key Takeaways from FY21 Results: Beach Energy Limited (ASX: BPT) is engaged in the exploration and production of oil and gas.

• Revenue Decline: The company reported sales revenue of $1,519 million, down by 8% YoY and sales volume of 26.1 MMboe, down by 6% YoY in FY21.
• Lower Production: EVN recorded 25.6 MMboe of production in FY21, down 4% YoY mainly due to the declining performance in the Western Flank.
• Reached FID: BPT reached the Final Investment Decision (FID) on the Waitsia Gas Project Stage 2 in the Perth Basin. BPT has undertaken LNG marketing negotiations at the Waitsia project and targets execution of the LNG sales contract in FY22.
• Doubled Production: BPT doubled the oil production at its Perth Basin facilities to 0.8 MMboe, up by 105% YoY in FY21.
• Acquisitions: In FY21, BPT completed two strategic acquisitions in the Bass and Cooper Basins.
• Net Debt Balance: BPT recorded $48 million of net debt and liquidity of $402 million as of 30 June 2021.
• Higher Cash Balance: BPT held $126.7 million cash, up by 15% YoY in FY21.
• Final Dividend: BPT has declared 1.0 cents per share of final dividend for FY21.

Sales Revenue & NPAT from FY18-FY21; (Analysis by Kalkine Group)

Key Risks:

• Regulatory Delays: BPT faces changes in regulations and delays in approvals for conducting oil and gas exploration.
• Commodity Price Changes: The company faces changes in oil and gas prices, impacting its revenue and profitability.

Outlook:

• In the Perth Basin, BPT will speed up activities on the Waitsia Gas Project Stage 2, begin constructing the new gas processing facility and drilling its first development wells.
• On the Western Flank, BPT plans a single-rig program primarily focused on oil and gas exploration.
• In New Zealand, BPT plans to make the Kupe Compression project online in 1HFY22, extend the facility's production life, and assess future drilling opportunities to optimise the Kupe plant.
• BPT will continue investing in its current assets across all five basins in FY21, prioritising Kupe compression and Geographe gas delivery in FY22.

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 BPT gave a negative return of 17.96% in the past three months and a negative return of 35.77% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.025 - $2.035. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average, considering its lower revenue, NPAT, production, cash flows from operating activities, in FY21 and the associated risks of changes in the production and prices of oil and gas and COVID-19 uncertainty. For the purpose of valuation, few peers like Central Petroleum Limited (ASX: CTP), Karoon Energy Limited (ASX: KAR), Cooper Energy Limited (ASX: COE), and others have been considered. Considering the current trading levels, increase in the cash balance, expanded base with two bolt-on acquisitions completed in FY21, oil production increase in Perth Basin, valuation, and decent outlook, we give a ‘Buy’ rating on the stock at the current market price of $1.050, down by 1.409%, as on 31 August 2021.

BPT Daily Technical Chart, Data Source: REFINITIV  

Costa Group Holdings Limited

CGC Details

1HCY21 Key Highlights: A horticulture company, Costa Group Holdings Limited (ASX: CGC) is engaged in providing fresh produce to major Australian food retailers. Recently, the company stated that Perpetual Limited and its related bodies corporate, a substantial shareholder of the company, has increased its voting power from 9.8% to 10.88%.

• Acquisition of 2PH Farms: The company successfully executed a conditional agreement to acquire the assets of 2PH Farms Pty Ltd. The acquisition is expected to support increased revenue contribution from the citrus category and also push export supply to key Asian markets.
• Revenues in Line: During the period, the Group delivered revenues of $612.4 million, flat on a year over year basis. In in constant currency revenues went up 1.7%
• Rise in EBITDA & NPAT: EBITDA-S grew by 4.3% year over year to $124.4 million in 1HCY21, and the statutory NPAT stood at $37.5 million.
• Enhancing Shareholder’s value: The management a declared dividend of 4 cents per share fully franked, with a payment date of 7 October 2021.
• Capital Raising: At the end of July 2021, the company completed the capital rise of ~$190 million to institutional and eligible retail shareholders. The proceeds from capital raising were utilised to fund the acquisition of the business and assets of 2PH Farms Pty Ltd and its related entities.
• Robust International Result: International sales were up 25% on pcp in 1HCY21, as a result of positive pricing, yield and demand maintained over the entire China season and favourable earlier fruit timing and stronger pricing in Morocco.
• Increase in Cash Balance: It ended the period with cash and equivalents of $97 million, up from $32.5 million as of December 2020.

Cash Highlights (Source: Analysis by Kalkine Group)

Key Risks: The company’s operations depend on the ease of availability of labours for seamless functioning, and any challenges to procure it might impact the harvesting capability of CGC. It is also prone to the impacts of climate risk and foreign currency risk on export earnings.

Outlook: The company expects CY21 EBITDA-S and NPAT-S to be marginally ahead of CY20. The company expects positive momentum in 2HCY21, driving the remainder of the citrus season across the growing regions, particularly with solid export into Japan, China, and Korea.

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 per ASX, the stock of CGC is trading below its average 52-weeks’ levels of $3.11-$4.811. The stock of CGC gave a negative return of ~30.71% in the past six months. The stock has been values using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount to its peer average EV/Sales (NTM trading multiple), considering the impact of COVID-19, labour challenges and foreign currency impact. For this purpose, peers such as Elders Ltd (ASX: ELD), Inghams Group Ltd (ASX: ING), Select Harvests Ltd (ASX: SHV), and others have been considered. Considering the expected upside in valuation, current trading levels, revenue visibility from strategic acquisitions, expected accretion in EPS, favourable outlook and raise of equity capital, we recommend a ‘Buy’ rating on the stock at the current market price of $3.13, as on 31 August 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

CGC Daily Technical Chart, Data Source: REFINITIV 

PolyNovo Limited

PNV Details

Key Findings from FY21 Results: PolyNovo Limited (ASX: PNV) is a medical device company that designs, develops, and manufactures dermal regeneration solutions (NovoSorb BTM) using its patented technology.

• Rise in Total Revenues: In FY21, PNV reported total revenues of $29.16 million, up ~32% year over year, owing to higher sales from NovoSorb® and BARDA clinical trial program (up 18.1% on pcp).
• Improvement in Operating Income: In FY21, operating income stood at $0.4 million, compared to a loss of $1.2 million reported in the year-ago period, owing to robust revenue growth, gross margin expansion, and cost management initiatives.
• Improvement in Bottom Line: In FY21, the company’s net income after tax (excluding non-cash items) stood at $0.26 million, as compared to a loss of $1.20 million reported in FY20, owing to the growth in commercial sales of NovoSorb® BTM locally and internationally.
• Improvement in BTM Revenues: In FY21, the company’s BTM revenue witnessed a growth of 34% year over year. In FY21, US BTM revenue grew 49% year over year and stood at US$15.5 million.
• Expansion in Different Geographies: In FY21, PNV’s Distributor revenue witnessed an increase of 53% year over year, with solid rises in the DACH region (Germany, Switzerland, and Austria). Also, the company’s FY21 Australia BTM revenue rose ~25% on pcp.
• Liquidity Position: The company exited the period with cash, including short-term investments of $7.69 million. The company’s total debt at the end of the period stood at ~$10 million.

Revenue Trend ($ in million); Analysis by Kalkine Group

Risk Analysis: 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. 

Outlook: PNV is well equipped with Hernia repair device development and expects to bolster its foothold in the US market in years to come. It also expects to Launch small NovoSorb BTM sizes in Australia, New Zealand, Singapore, EU, or the UK. The company continues to witness an expansion of sales outside of burns and expects to enter FY22 on a good note.

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 ~9.35% in the past six months. Currently, the stock has a 52-week’s high and low level of $4.08 and $1.985, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium as compared to its peers’ average, considering a reasonable rise in revenues, higher Sales of NovoSorb® BTM, and geographical expansion. For the purpose of valuation, peers such as Telix Pharmaceuticals Ltd (ASX: TLX), and Paradigm Biopharmaceuticals Ltd (ASX: PAR), and other have been considered. Hence, taking into account the decent FY21 BTM performance, improvement in bottom-line, optimistic outlook in the long run, higher demand for NovoSorb® BTM, expanding international footprint, valuation, and current trading level, we recommend a “Buy” rating on the stock at the current market price of $2.19, as on 31 August 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

PNV Daily Technical Chart, Data Source: REFINITIV 

Silver Lake Resources Limited

SLR Details

Issue of Shares: Silver Lake Resources Limited (ASX: SLR) is a gold and gold/copper concentrate mining firm. SLR undertakes Deflector Operations and Mount Monger Operations in Western Australia. On 24 August 2021, SLR announced to issue 82,657 ordinary fully paid shares due to the exercise of options/ conversion of securities held by David Vemer, key management personnel.

FY21 Highlights:

• Increase in Revenue: The company posted an increase of 6% YoY in revenue to $598.3 million in FY21.
• Increase in Normalised EBITDA: SLR reported an increase of 12% YoY in normalised EBITDA to $290.8 million and a 6% increase in the Group EBITDA margin to 49% YoY in FY21.
• Fall in Statutory NPAT: SLR recorded $98.2 million statutory NPAT in FY21 versus $256.87 million in FY20.
• A Decline in Production: SLR registered a decline of 9% YoY in production to 249,177 oz in FY21.
• Higher Inventory and Liquidity: SLR reported a 94% YoY increase in ore stocks and a higher balance of Cash and Bullion, up 23% YoY as of 30 June 2021 to 330.2 million.

  Revenue from FY19-FY21; (Analysis by Kalkine Group)

Key Risks:

• Skilled Workforce: The company faces a shortage of skilled labour due to travel constraints interstate and overseas. The restricted labour mobility, in turn, causes a threat to operational efficiency and productivity.
• Gold Price Changes: SLR faces changes in the realised prices of copper and gold, impacting its revenue.

Outlook:

• SLR maintains the sales guidance between 235,000-255,000 gold ounces at an AISC of $1,550-$1,650/oz for FY22.
• At Deflector, SLR expects gold sales in FY22 to be 10-20% higher than FY21 due to increased recoveries and higher milled grades.
• The company has created a pipeline of projects at Mount Monger from the exploration program in FY21 and near-term targets.
• SLR has narrowed down Tank South underground mine and the Santa projects for development in FY22.

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 SLR gave a positive return of 2.98% in the past six months and a positive return of 23.54% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.280 - $2.540. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average, considering its lower gold production at higher AISC in FY21, lower production guidance at higher AISC for FY22 and the associated risks of limited skilled labour and COVID-19 uncertainty in FY22. For the purpose of valuation, few peers like Red 5 Limited (ASX: RED), Calidus Resources Limited (ASX: CAI), Iluka Resources Limited (ASX: ILU), and others have been considered. Considering the current trading levels, decent financial performance in FY21, valuation, the modest outlook in FY22, higher gold sales expected at Deflector operations in FY22, we give a ‘Buy’ rating on the stock at the current market price of $1.375, down by ~2.136%, as on 31 August 2021.

SLR 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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