Perenti Global Limited

Company Overview: Perenti Global Limited (ASX: PRN) is a diversified global mining services group that provides surface and underground mining services. Under its surface mining business, PRN provides exploration drilling, production drilling, blasting, and geotechnical services. PRN has specialisation in rapid high-speed mine development, production, diamond drilling, vertical development, design planning and scheduling, and equipment supply and maintenance. The company was listed on ASX on 6 January 1994.

PRN Details

Macquarie Conference Highlights: On 2^nd December 2021, the company participated in Macquarie Conference, wherein, the management highlighted that its performance in H1FY22 was in-line with expectations and similar to H2FY21. In H2FY22, the company intends to announce a strategic refresh to support it refocus on creating shareholder value. Some of the key points highlighted at the conference are as follows:

• During H1FY22, the company liberated ~$7 million through the divestment of non-core corporate equity positions.
• The company also finalised the sale of non-core property held for sale on the balance sheet and expect the imminent receipt of ~$31 million.
• The refreshed 2025 strategy will be focused on optimising business performance and improving free cash flow.

FY21 Result Highlights: During FY21, the company witnessed solid operating performance and growth from the underground business. Some of the key highlights of FY21 are as follows:

• Decent Financials: For FY21, the company reported stable revenue of $2.02 billion and an underlying EBIT(A) of $170.8 million.
• New Work Secured: Over the year, the company secured new work and contract extensions of $2.8 billion, which includes two key growth contracts in North America and Botswana.
• Reduction in Net Debt: At the end of FY21, the company had net debt of $503 million, down by 10% on the previous year.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Metrics: Gross margin for FY21 stood at 28%, down from 31.1% in FY20. EBITDA margin for FY21 stood at 11.6%, down from 21.2% in FY20. Current ratio for FY21 stood at 2.26x, down from 2.48x in FY20. Cash cycle days for FY21 stood at 86.8 days, down from 99.1 days in FY20.  Debt to Equity ratio for FY21 stood at 0.59x, down from 0.63x in FY20.

Liquidity Profile (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 46.06% of the total shareholding while the top four constitutes the maximum holding. L1 Capital Pty Ltd. and Fidelity Management & Research Company LLC are holding a maximum stake in the company at 10.93% and 8.74%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

AMS Finalised Motheo Contract with SFR:  On 20 December 2021, the company announced that its surface mining business in Africa, African Mining Services (AMS) has secured a contract for the provision of open pit mining services at the Sandfire Resources (ASX:SFR) Motheo Copper Project in Ghanzi, Botswana. The finalised contract is valued at US$493 million (100% basis) over an initial term of seven years and three months, with a provision for a one-year extension.

Divestment of MinAnalytical: As part of the ongoing strategic review of the company’s portfolio, on 17 December 2021, PRN announced the divestment of MinAnalytical Laboratory Services Australia Pty Ltd to ALS Limited (ASX: ALQ) for a total consideration of $43.6 million in cash.

Burkina Faso Operations Update: Following recent political developments in Burkina Faso, PRN recently assured that its operations are continuing as usual, and all its people are safe and accounted for. The company continues to work closely with its clients and advisers to ensure the safety of its people and operational continuity.

Key Risks:

• COVID-19 Uncertainties: The COVID-19 led travel restrictions and quarantine requirements could create challenges for the company in mobilising both its expatriate and domestic workforces.
• Foreign Currency Risk: The company is also exposed to foreign currency exchange rates as the variation in exchange rates can impact the company’s financial performance.

Outlook: Looking ahead, the company is focused on optimising the performance of its business and creating long-term sustainable value for its shareholders. The company intends to progress several capital management initiatives designed to generate cash flow, streamline its portfolio, liberate cash, sustainably reduce its leverage ratio and efficiently allocate capital across its business. The company expects a stronger H2FY22 on the back of improved productivity and growth projects achieving improved run rates. For FY22, the company expects revenue of $2.0 billion to $2.2 billion and EBIT(A) of $165 million to $185 million at an AUD to USD exchange rate of 0.75.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

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 ~16.21% in the past one month. Currently, the stock is trading below the average of its 52-week low and high levels of $0.625 and $1.555, respectively. The stock has been valued using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainties surrounding the COVID-19 pandemic, and fluctuations in foreign currency exchange rates. For the purpose of valuation, peers like Imdex Ltd. (ASX: IMD), MACA Ltd (ASX: MLD), and DDH1 Ltd (ASX: DDH), and others have been considered. Considering the company’s decent performance in H1FY22, ongoing focus on optimising the performance of its business, modest outlook, current trading levels, indicative upside in the valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.765, as on 2 February 2022, 10:40 AM (GMT+10), Sydney, Eastern Australia.

PRN Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

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 the 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.

Disclaimer

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