Vulcan Energy Resources Limited

Company Overview: Headquartered in Australia, Vulcan Energy Resources Limited is the parent company of Vulcan Group. With its Zero Carbon Lithium™ Project, VUL plans to undertake production of a battery-quality lithium from geothermal renewable energy and lithium resource base in the Upper Rhine Valley of Germany. The company aims to cater to one of the fastest growing BEV (Battery Electric Vehicle) markets in Europe and currently imports lithium chemicals due to shortage of domestic supply.

VUL Details

• On 8 February 2021, VUL applied for a dual listing on the regulated market (Prime Standard) of the FSE (Frankfurt Stock Exchange). The German regulatory authority has sanctioned a listing prospectus concerning the proposed listing on the FSE.
• The shares are trading on the FSE from 15 February 2022 under ticker symbol VUL and the company plans to retain its primary listing on the ASX.

• Secured Binding Contracts: The company has entered binding agreements for lithium offtake with companies such as Umicore, Stellantis, Volkswagen Group, and Renault Group during the quarter.
• Enhanced Infrastructure: During Q2FY22, VUL acquired Insheim, an operational geothermal renewable energy power plant, consistent with its strategy to buy and upgrade available brownfield renewable energy and brine infrastructure. It plans to develop multiple distributed geothermal renewable energy plants.
• Expanded Licenced Area: VUL purchased 3D seismic and drilling data from Rhein Petroleum GmbH to plan for 3D seismic surveys in its license areas and facilitate additional project generation. The newly granted licences post-Q2FY22-end have expanded VUL’s grated license area by ~50%. VUL plans to target completion of its Phase 1 Definitive Feasibility Study (DFS) in 2HFY22 to include more project areas into expanded production studies.
• Liquidity Position: The company exited Q2FY22 with ~€135 million cash as of 31 December 2021 post an equity raise of ~$200 million in Q3FY21 (September 2021).

The trend of Current Ratio from FY18-FY21, Highlights; (Analysis by Kalkine Group)

Key Metrics: VUL’s current ratio improved significantly from ~29.46x in FY20 to ~51.22x in FY21 due to expanded asset base as of 30 June 2021. In comparison to the industry median of ~1.84x, VUL’s current ratio consistently stood higher in FY21 as well at ~51.22x. The company continues to witness nil debt-to-equity ratio in FY21 and maintained a zero-debt level.

Top 10 Shareholders:

The top 10 shareholders together form ~40.73% of the total shareholding. Wedin (Francis Edward Barnabas) and Rezos (Gavin John) holds a maximum stake in the company at ~12.50% and ~5.77%, respectively.

Source: Analysis by Kalkine Group

Key Risks:

• Demand & Price Outlook: The company faces the risk of changes in lithium prices and demand subject to various factors of supply, production, regulatory policies, and global changes.
• Exploration Risks: VUL faces the risk of exploration and production of lithium and expanding the source base for identifying prospects & targets for mineral resource update.

Development Plans Ahead:

Valuation Methodology: Price to Book Value 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.

Technical Note: On the daily chart, VUL prices are trading above the falling trend line support zone and taking the support of the trendline. Moreover, the momentum oscillator RSI (14-period) trading at ~53.05 level, showing positive sign. However, the prices are trading below the trend-following indicator 21-period SMA, which may act as a resistance level. An important support level for the stock, is placed at AUD 7.460 while the key resistance level is placed at AUD 10.30.

Stock Recommendation: The stock of VUL gave a negative return of ~38.18% in the six months and gave a positive return of ~9.10% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $5.180 - $16.650. The stock has been valued using the P/BV 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 discount than its peers’ average P/BV multiple, considering the continuing negative bottom-line, net operating cashflows, the exploration risk, and the COVID-19 uncertainty. For this purpose of valuation, a few peers like Mineral Resources Ltd. (ASX: MIN), Piedmont Lithium Inc (ASX: PLL), Arizona Lithium Ltd (ASX: AZL), and others have been considered, which fall under the diversified metals and mining sector. Considering the current trading levels, the trend of nil debt-to-equity ratio, lithium offtake agreements with Tier-1 companies for the next five years, demand drivers for lithium products, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $8.400, as of 9 March 2022, 10:35 AM AEST (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. 

VUL 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.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.