Stocks’ Details

Perenti Global Limited

Exceptional Performance by Underground Mining Business: Perenti Global Limited (ASX: PRN) is a diversified mining services group having footprints in surface mining, underground mining, and mining support services. The market capitalisation of the company stood at $764.56 Mn as on 21^st May 2020. Recently, the company noted an announcement by Panoramic Resources Limited (ASX: PAN) with respect to the temporary suspension of operations at its Savannah Nickel Mine in Western Australia. The subsidiary company of Perenti Global Limited “Barminco” inked an agreement with Panoramic Resources Limited to undertake mine development, production, and haulage at Savannah Nickel Mine on 21^st February 2020.

In response to COVID-19, the key priorities of the company revolve around, limiting the spread of the virus, protecting the health and safety of its people, delivering value for its customers and stakeholders. During 1H FY20, the underground mining business of the company, throughout Australia and Africa have performed exceptionally well.


Key Financials (Source: Company Reports)

Suspension of Guidance: Considering the uncertainty caused by COVID-19, the company has suspended its earnings guidance range of $115 million-$120 million for FY20. However, PRN has not experienced any impact on its financial performance from COVID-19 pandemic.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: Perenti Global Limited possesses a robust liquidity position with current cash reserves and undrawn revolving credit facilities of around $315 million and $115 million, respectively. Moreover, PRN has access to equipment finance facilities. We have valued the stock using the P/E multiple based illustrative relative valuation method andarrived at a target price with an upside of lower double-digit (in percentage terms). For the purpose, we have taken peers like Imdex Ltd (ASX: IMD), MACA Ltd (ASX: MLD) and Macmahon Holdings Ltd (ASX: MAH) etc. Therefore, considering the strong liquidity position, exceptional performance in underground mining space and suspension of guidance, we give a “Speculative Buy” recommendation on the stock at the current market price of $1.190 per share, up by 9.174% on 21^st May 2020.

Beach Energy Limited

Drilling at Victorian Otway Basin: Beach Energy Limited (ASX: BPT) is mainly engaged in the exploration of oil and gas. The market capitalisation of the company stood at $3.54 billion as on 21^st May 2020. The company and its Joint Venture Partner, OGOG (Otway) Pty Ltd are committed to the development of its undeveloped Otway Basin gas reserves, and exploration for additional gas reserves. In addition, BPT, as the operator of the Victorian Otway Basin Joint Venture, has issued the Ocean Onyx rig operator Diamond Offshore Drilling Inc., with a notice of termination for the Ocean Onyx rig contract. However, Diamond Offshore Drilling Inc has filed a petition in court seeking that the termination of the contract by Beach is invalid. At the Victorian Otway Basin, the company has successfully drilled 7,200 metres from an onshore location.

During Q3 FY20, the company reported a decline of 7% to $431 million in sales revenue because of declining oil price through the end of the period, which was partly offset by higher realised gas prices. During the same period, the production of the company zoomed up by 8% to 6.9 MMboe, reflecting continued growth in Western Flank oil.


Key Metrics (Source: Company Reports)

Guidance: For FY20, the company expects production in the range of 27MMboe – 28 MMboe and Underlying EBITDA between $1.175 billion – 1.25 billion. 
 
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)


EV/Sales Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Despite the unprecedented global environment as a result of COVID-19 and oil price volatility, Q3FY20 has been a robust one because of the increased production and continued facility reliability. Net margin of the company stood at 29.4% in 1H FY20 as compared to the industry median of 8.0%, reflecting decent capabilities of BPT to convert its top-line into the bottom-line against the broader industry.  We have valued the stock using an EV to Sales multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Oil Search Ltd (ASX: OSH), Santos Ltd (ASX: STO), Origin Energy Ltd (ASX: ORG) etc., and arrived at a target price with an upside of lower double-digit (in percentage terms). Thus, considering the outlook for FY20, increased production and continued facility reliability during Q3, and decent capabilities to convert its top-line into the bottom-line, we give a “Hold” recommendation on the stock at the current market price of $1.615 per share, up by 4.194% on 21^st May 2020.

BCI Minerals Limited

Acquisition of Tenement Rights:  BCI Minerals Limited (ASX: BCI) is involved in the production and exploration of iron ore and other metals. The market capitalisation of the company stood at $57.84 million as on 21^st May 2020. Recently, the company has acquired tenement rights adjacent to the Mardie Salt & Potash Project from Leichhardt Industrials Pty Ltd. The company will pay cash amounting to $3.5 million to Leichhardt upon completion in exchange for rights to the southern tenement area. BCI has a call option, and Leichhardt has a put option, on rights to the remaining northern tenement area for a period of 12-months after completion. In addition, BCI would pay $2.5 million in cash to Leichhardt upon the option being exercised by either party.

For the quarter ended 31^st March 2020, the company has recorded Iron Valley EBITDA amounting to $8.6 million from 1.3Mt shipments. The company is making good progress in its funding strategy for the Mardie Project, despite the impact of Covid-19 on the financial markets in recent months. BCI is in discussions with the Northern Australia Infrastructure Facility of Federal Government regarding potential long tenor debt, which is an important part of Mardie’s financing strategy.


Iron Valley EBITDA (Source: Company Reports)

Outlook: BCI is continuing to progress on the designs and approvals for the current project footprint, and the Definitive Feasibility Study is expected to be complete in June 2020.

Stock Recommendation: BCI Minerals Limited closed the March 2020 quarter with a cash balance of around $40 million. Current ratio of the company stood at 3.45x in 1H FY20 as compared to the industry median of 1.81x. This implies that the company is in a decent position to address its short-term obligations against the peer group. The stock of BCI Minerals is trading at a price to book multiple of 0.6x against the industry median (Basic Materials) of 1.5x on TTM basis. Over the span of one month, the stock has produced returns of 16.00%. Hence, in light of the recent acquisition of tenement rights, progress in funding strategy and decent liquidity position, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.150 per share, up by 3.448% on 21^st May 2020.

Strike Energy Limited

Partnership with Australian Gas Infrastructure Group:  Strike Energy Limited (ASX: STX) is engaged in the exploration of oil and gas. The market capitalisation of the company stood at $298.59 Mn as on 21^st May 2020. Recently, the company has entered a partnership with Australian Gas Infrastructure Group in order to design, build, own and operate the Phase 1 50TJ/d natural gas plant to process West Erregulla gas field of STX. This project reflects an investment of over $200 million in infrastructure and services by Australian Gas Infrastructure Group. Both the parties are entering FEED and aiming a final investment decision by the end of 2020. In addition, the parties are expecting first gas delivery in 1H FY22.

Finished Quarter with Nil Debt: During Q1 FY20, the company was focussed on preparation for the West Erregulla appraisal drilling campaign, which includes long lead procurement for WE3 with various Perth Basin seismic campaigns. The company also invested considerable resources on its midstream tender process and pre-FEED activities for receipt of gas from West Erregulla. STX closed the quarter with the cash balance of $24.3 million, and nil debt and its expenditure was in line with forecasts. 


Cash Flows (Source: Company Reports)

Stock Recommendation: The company is fully financed to its targeted Phase 1 FID of West Erregulla. With the requisite funding in hand and a safe and experienced Board armed with a resilient strategy, STX has maintained the excellent momentum it commenced the year with. The stock of Strike Energy delivered a return of 34.62% during the last one month. Hence, considering the nil debt position at the end of Q1 FY20, resilient strategy, targeted Phase 1 FID of West Erregulla and expected first gas delivery during 1H FY22 from the new partnership, we give a “Hold” recommendation on the stock at the current market price of $0.190 per share, up by 8.571% on 21^st May 2020.

 
Comparative Price Chart(Source: Refinitiv, Thomson Reuters)

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