Latest Research

Pacific Energy (PEA) - Contract Power Acquisition

Pacific Energy LogoPEA has acquired Contract Power, one of its key competitors in remote power supply. The $90m acquisition ($85m cash and $5m scrip) will be debt funded with the acquisition price implying a 6x EV to FY19f EBITDA multiple which, in our view, is fair for a business with the sort of long term earnings visibility that Contract Power offers. On our numbers we forecast the deal will be ~10% EPS accretive in FY19. We believe PEA is now very well positioned to capitalise on a strong growth pipeline and maintain our BUY recommendation on a revised $0.80 valuation (previously $0.70).

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Threat Protect (TPS) - Well Connected

Threat Protect LogoThe $8m acquisition of SA-based Security Alarm Monitoring Service (SAMS) adds 55% more connections, diversifies and boosts revenue, increases capacity across the group, and provides organic growth opportunities to leverage infrastructure. Our forecasts are upgraded on an assumption SAMS adds to group margin and, given debt funding, delivers earning accretion. Upgrade to Spec Buy (prior Hold) on a $0.225 valuation (prior $0.170).

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Kidman Resources (KDR) - World Class Scale

Kidman Resources LogoKidman Resources (KDR) released an updated Mineral Resource for the Earl Grey lithium deposit in Western Australia with 189Mt @ 1.5% Li2O for 2,843kt contained Li2O or 7Mt lithium carbonate equivalent (LCE). This represents a 54% increase in LCE and positions Earl Grey to the second largest hard rock lithium deposit globally. The greater Mt Holland project is World Class based on its large scale, wide mineralisation, low strip ratio, further exploration potential and low risk jurisdiction. KDR will have strong newsflow through 2018 with feasibility studies on the spodumene concentrator and lithium carbonate/hydroxide refinery in Q3 and Q4 respectively, as well as potential offtake agreements. The Company is focussing on ex-China markets which we see a valuable differentiator to its peer group of ASX listed hard rock lithium plays. SPEC BUY maintained with a revised target price of $2.50 (from $1.90).

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Paringa Resources (PNL) - Deep Value Despite Weather Delays

Paringa Resources LogoParinga Resources (PNL) released a construction update of its Poplar Grove thermal coal mine citing minor delays from a significant flooding event. The site was impacted by the worst flooding in the Western Kentucky region in 20 years. The impact will likely push production back four weeks from late-August to September/October 2018. Importantly, the sites levy system mitigated any major impact to installed infrastructure or the mine box cut. PNL is trading at a deep discount to Argonaut’s $1.50/sh target price, and despite delays, it is just six months from first production. Recently announced US tariffs and declining US coal inventories should buoy domestic coal demand and prices. BUY maintained.

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Gascoyne Resources (GCY) - On The Road To First Gold

Gascoyne Resources LogoGascoyne Resources’ (GCY) Dalgaranga project remains on time and budget for completion in May 2018. The majority of the critical path items have been delivered to site or are currently being installed. Mining has commenced at Sly Fox with first ores delivered to the ROM pad. At Golden Wings, dewatering and grade control is underway. Power infrastructure is being installed with first gas delivery expected in the coming weeks and gas generator installation expected in early April. First gold is expected around mid-May 2018. Exploration is ongoing with RC drilling at Greencock and aircore drilling at Seagram’s and other regional targets. GCY trades at an undemanding EV/production (forecast FY19) of $2,100/oz versus its producer peer group of ~$4,500/oz and other emerging developers at ~$3,000/oz. GCY also trades on a forward-looking EV/EBITDA of 4.5x versus the peer group average of ~7.0x. GCY trades at 40% discount to our NAV, and as construction is completed and production commences, the discount to our target price should unwind. We maintain our BUY recommendation and target price of $0.84ps ($0.88 prior) after making minor revisions to our model.

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