This report is an updated version of the report published on 28 October 2024 at 04:03 PM AEDT.

Stanmore Resources Limited (ASX: SMR)

SMR is an Australia-based resources company with operations and exploration projects in the Bowen and Surat basins.

Recommendation Rationale - SELL at AUD 3.22

• Trading Around Resistance: SMR has surpassed the ‘Resistance 1’ level recommended on 20 September 2024; therefore, share price can face resistance at the current levels.
• Third Quarter Results: In Q3 FY24 results, SMR witnessed a softening of prime hard coking coal prices during the quarter due to weakness in the steel market and high Chinese steel exports. The ongoing market volatility and dependency on further economic measures from China could pose a risk to future profitability.
• Overvalued Multiples: On a forward 12-month basis – SMR’s price/earnings multiple is 11.6%, while the industry average is 10.2%.
• Geopolitical and Regulatory Risks: Changes in government policies regarding coal, carbon emissions, or energy in major markets like China, India, or Australia could affect SMR’s operations and profitability. Increasing global focus on decarbonization and a potential shift toward renewable energy sources could decrease long-term demand for coal.

SMR Daily Chart

(Source: REFINITIV; Analysis by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY Dec'25E) (Illustrative)

SMR is expected to trade at a discount due to continued weakness in the steel market, and profit decline in H1 FY24 results. For conducting the valuation, the following peers have been considered: Coronado Global Resources Inc (ASX: CRN), Mount Gibson Iron Ltd (ASX: MGX), and Whitehaven Coal Ltd (ASX: WHC).

Considering that the stock has crossed its R1 level and approaching R2, market uncertainties, and risks associated, the share price can witness some correction at the current levels before moving higher. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 3.22, as of 28 October 2024, at 2:34 PM AEDT. 

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

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 28 October 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Dividend Yield may vary as per the stock price movement.

Technical Indicators Defined: -

Support: A level at which 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 at which 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: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.