Northern Star Resources Ltd

NST Details

Material Business Update: Northern Star Resources Ltd (ASX: NST) is engaged in the exploration, mining and processing of gold deposits and the sale of refined gold. It owns and operates Kalgoorlie Operations and Yandal Operations.

• As announced on 2 December 2021, NST completed the Kalgoorlie power business acquisition from Newmount Corporation at $95 million. The business involves a 50% stake in the 110MW Parkeston Power Station and related infrastructure delivering electricity to KCGM and the Kalgoorlie area.
• As announced on 1 December 2021, NST holds the option of converting debentures at a conversion price of C$4.00/common stock of Osisko Mining. Post conversion, NST will keep equity participation rights to maintain a 9.9% stake in Osisko Mining, subject to specific exclusions.

Q1FY22 Operational Activities

• Gold Sales: During the September quarter, gold sales stood at 386,160 ounces at an AISC of $1,594/ounce. Sales by production centre –
  • Kalgoorlie – 232,324 ounces gold sold at AISC of $1,533 per ounce
  • Yandal – 109,844 ounces gold sold at AISC of $1,345 per ounce
  • Pogo – 43,992 ounces gold sold at AISC of $1,751 per ounce
• Sales Price: Average Realised price stood at $2,345 per ounce for sales revenue of $848 million. In line with the hedging strategies, 196,751 ounces hedging was delivered at $2,242 per ounce.
• Financial Position: Cash and bullion, as of 30 September 2021, stood at $756 million, relative to $803 million as of 30 June 2021. The cash balance accounts for a $110 million dividend and $123 million growth and exploration capital investment.

Quarterly AISC Movement, Analysis by Kalkine Group

Key Risks

Fluctuations in gold price directly affect the realisation and hold high profitability sensitivity. Geological patterns influence the age of mine and the quality of minerals. Forex volatility risk affects profitability.

Outlook

• For FY22, NST expects 1.55 – 1.65M ounces at an AISC of $1,475 - $1,575 per ounce. Gold production is weighted towards H2FY22, primarily driven by surging grades at Yandal and mining rates at Pogo edging up.
• NST’s net growth capital for net exploration and growth capital budget remains unchanged at $710 million for FY22.
• The company’s 5-year strategic plan targets production growth and profitability to sustain 2M ounces/annum by FY26, coupled with declining AISC.

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 NST gave a negative return of ~29.00% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $7.955 - $14.080. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low double-digit (in percentage terms). Considering stable cash flow generation and quality assets, the company might trade at a slight premium to its peers. For valuation, few peers like Mincor Resources NL (ASX: MCR), Alkane Resources Ltd (ASX: ALK), Newcrest Mining Ltd (ASX: NCM), and others have been considered. Given the upsurge in gold production during Q1FY22, healthy balance sheet, revised dividend policy, and upside indicated by valuation, we give a “Buy” recommendation on the stock at the market price of $9.150, as of 09 December 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

NST Daily Technical Chart, Data Source: REFINITIV

Afterpay Limited

APT Details

Material Business Update: Afterpay Limited (ASX: APT) provides technology-enabled payment solutions for businesses and consumers via its Afterpay and Pay Now services. On 7 December 2021, APT released an update on the Scheme of Arrangement and Scheme Meeting held on 14 December 2021. The meeting pertains to the acquisition proposal by Lania (AU) 2 Pty Ltd, which is a 100% owned indirect subsidiary of Square, Inc. (NYSE: SQ). APT will continue collaborating with Square to progress the remaining regulatory and other requirements to execute the Scheme, with implementation anticipated to occur in Q1CY22.

FY21 Financial Performance

• Top-Line Update: APT’s total income stood at $924.7 million, edged up by 78% YoY. Income surged to $822.3 million, up by 90% YoY, and Pay Now revenue stood at $13.8 million, shedding 16% YoY. Aggregate underlying sales stood at $21.09 billion, up by 90% YoY. Active customers grew to more than 16 million and partnered with 100k active merchants.
• Bottom-Line Update: APT stands at a gross loss of $194.9 million relative to a $94.5 million loss in FY20, with constant gross margins. Net transaction loss increased to $132.6 million relative to $42.8 million. Loss after tax clocked $159.4 million relative to $22.9 million in FY20. APT’s loss after tax is primarily affected by a $96.8 million net loss in financial liabilities at fair value.
• Financial Status: As of 30 June 2021, APT registered $1,147.1 million in cash, an incline of $541.1 million. Total liquidity, including cash and undrawn warehouse capacity, stands at $2,298.7 million, considerably above $728.4 reported the prior year. The financial position can support underlying sales of $40 billion, above the current annualised run-rate of $24 billion.

FY21 Financial Snapshot, Analysis by Kalkine Group

Key Risks and Challenges

Containment restrictions pose a significant impact on loan originations and hence increase liquidity risk. The business model is highly susceptible to expensive technical glitches. APT may absorb high market impact costs amid potential global disruption and frequent updates from RBA.

Outlook

The BNPL industry continues to gain momentum as global spending on BNPL services has inclined rapidly over the past two years, up by over 300%, while credit card purchases have flatlined. Gen Z and Millennial share of spending are expected to increase 47% by 2030 across the US, AU, and UK.

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 APT gave a positive return of ~1.849% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $81.850 - $160.050. The stock has been valued using the 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 the weak bottom-line and potential of high liquidity risk. For valuation, few peers like TechnologyOne Ltd (ASX: TNE), WiseTech Global Ltd (ASX: WTC), Tyro Payments Ltd (ASX: TYR), and others have been considered. Exponential incline in BNPL adoption, progressive outlook for Gen Z and Millennial share of spend, intact margins, current technical levels, and upside indicated by valuation, we give a “Speculative Buy” recommendation on the stock at the current market price of $99.350, as of 09 December 2021, 10:51 AM (GMT+10), Sydney, Eastern Australia.

APT Daily Technical Chart, Data Source: REFINITIV

Note: The purple line reflects the RSI (14-day period)

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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