TOP 5 ASX STOCKS TO BUY IN FY23

OZ Minerals Limited (ASX: OZL)

TEAM VEYE | 15 DEC 2020 | ASX – OZL

West Musgrave value and scale uplift in Pre-Feasibility Study Update

OZ Minerals Limited (ASX: OZL) OZ Minerals on 9 December 2020 announced that it would progress its study of the West Musgrave Project (WMP) following the release of the Pre-Feasibility Study Update (PFSU) for the Nebo and Bab

(Graphic Source – Company Reports)
  • ~25% increase in project Net Present Value to ~$1 billion, with IRR of ~20% (post-tax) on minimal capital increase
  • ~$4.5 billion undiscounted cashflow generated over the life of mine
  • Processing plant throughput uplift from 10 Mtpa to 12 Mtpa on increased grinding capacity
  • ~15% increase in average annual production to ~32,000 tpa copper and of ~20% to ~26,000 tpa nickel in concentrates
  • ~6% decrease in operating costs of $32/t ore mined
  • Ore Reserve tonnes of 253 Mt (100% Probable) at 0.35% Cu and 0.32% Ni
  • Off-grid renewable power solution confirmed; focus on developing a roadmap to 100% renewable generation
  • $67 million committed to progress the study ahead of final investment decision expected in 2022, subject to regulatory and other approvals
(Chart source: TradingView)

The PFSU incorporates strategic and technical updates resulting in an improvement to key project metrics relative to the Pre-Feasibility Study (PFS) released on 12 February 2020, including an increase to the processing plant throughput rate from 10 Mtpa to 12 Mtpa. The throughput increase has been achieved by leveraging additional grinding circuit capacity, based on further pilot plant test work, with minimal increase to capital costs. An updated Probable Ore Reserve of 253 Mt at 0.35% Cu and 0.32% Ni was also declared, representing ~22 years of the ~26-year life of mine (LOM) demonstrated in the PFSU (with the balance of the mine life underpinned by a combination of Indicated and Inferred Mineral Resources).  (Data Source – Company Reports)

Veye’s Take

The PFSU brings together nine months of focussed strategic and technical review which added significant value and further increased OZ Minerals’ confidence in the robustness of the project. The project continues to fulfil its ambition as a low carbon, low cost, long life copper and nickel mine, generating ~$4.5 billion in undiscounted cashflow over the life of mine. The PFSU work showed that increasing throughput from 10 Mtpa to 12 Mtpa reduces the processing operating costs allowing for an increase in the size of the open pits and resulting in an increase to both the Mineral Resource and Ore Reserve. The value uplift to West Musgrave further strengthened OZ Minerals’ strong pipeline of organic growth opportunities. The stock gained excellent momentum upon clearing of a strong hurdle at $16.93. Although bullish in the long term, it may face some correction in the short term. It has multiple supports up to $16.95. According to wave retracement, it can have the potential for a great run. Closing above $20.0 could be the first signal where another entry could be considered. Initial “Buy” was given to “OZ Minerals Limited” at the price of $10.61 on 25 June 2020. It has given very good returns of more than 76% in less than six months till now. Veye maintains a “Buy” on “OZ Minerals Limited” at the current price of $18.32

Nickel Mines Limited (ASX: NIC)

TEAM VEYE | 15 DEC 2020 | ASX – NIC

Nickel Mines announces A$364 million equity raising to fund the initial acquisition of a 30% interest in the Angel Nickel Project

Nickel Mines Limited (ASX: NIC) on 2 December 2020 launched a $364 million fully underwritten, accelerated pro-rata non-renounceable entitlement offer (‘Entitlement Offer’) to fund the acquisition of its initial 30% interest in the Angel Nickel Project (‘ANI’) within the Indonesia Weda Bay Industrial Park (‘IWIP’).

(Graphic Source – Company Reports)

Nickel Mines will acquire its 70% interest in ANI through the acquisition of shares in a Singaporean incorporated holding company, Angel Capital Private Limited (‘Angel Capital’) (which is currently 100% owned by Decent Resource, an affiliate of Shanghai Decent, and shareholder loans due or owing by Angel Capital (and/or its subsidiaries). Angel Capital will wholly own (directly and indirectly) a PMA operating company, PT Angel Nickel Industry, which is to be incorporated in Indonesia and will own the ANI assets.

The ANI structure will replicate the structures used for the existing HNI and RNI investments.

Site preparations and foundation work for construction of ANI are underway, and will comprise:

  • Four RKEF lines, with a combined annual nameplate production capacity of 36,000t of equivalent contained nickel in nickel pig iron;
  • A captive 380MW power plant; and
  • Ancillary facilities required for the operation of each of the RKEF lines and the power plant.
(Chart source: TradingView)

The majority of the proceeds from the Entitlement Offer will be put towards funding the First Acquisition payment. Excess funds will go towards strengthening the balance sheet and will provide additional working capital. The Company is in discussions with Shanghai Decent about the early repayment of the remaining balance of the Ranger Debt Facility.

Nickel Mines has optionality and flexibility around funding sources given its very lowly leveraged Pro-forma balance sheet (net cash of US$112m5 ) and strong cashflows from its existing operations within IMIP (Q3 2020 EBITDA of US$49 million from the Hengjaya Nickel (‘HNI’) and Ranger Nickel (‘RNI’) RKEF projects on a 100% basis). The Company is progressing potential debt funding options for the Second Acquisition payment. (Data Source – Company Reports)

Veye’s Take

Nickel Mines’ attributable nickel production profile is estimated to approximately double within two years. Completion of the Transaction will give Nickel Mines a 70% interest in ANI, which represents ~25.2ktpa of attributable nameplate nickel metal production following successful commissioning of ANI. The Company considers that the US$490 million Transaction price represents an attractive valuation and is highly accretive. The stock is trading above its 50 and 200 MAs as also its strong daily support at $0.99. It can have the potential of growing significantly in short to medium term. Latest “Buy” on “Nickel Mines Limited” at the price of $0.68 was given on 31 August 2020. It has already grown by more than 65% in less than four months. Veye maintains a “Buy” on “Nickel Mines Limited” at the current price of $1.125

GDI Property Group (ASX: GDI)

TEAM VEYE | 15 DEC 2020 | ASX – GDI

GDI annual results for the year ended 30 June 2020

GDI Property Group (ASX: GDI) on 24 August 2020 released its annual financial results for the year ended 30 June 2020.

Key highlights

  • Net Tangible Asset (NTA) per security of $1.30, up to $0.04 per security from the NTA at 30 June 2019, but a slight decrease from the 31 December 2019 NTA of $1.32
  • Funds From Operations (FFO) per security of 8.22 cents
  • Distribution per security for the year of 7.75 cents, in line with guidance
(Chart source: TradingView)

Operational highlights

Leasing

The highlight from a leasing perspective was the Minister of Works executing two new leases for 14,522 sqm at Westralia Square. The Western Australia Police Force (WAPOL) has leased 12,689 sqm over levels 1-5, 8 and 9 for a period of five years commencing 1 February 2021 and Births Deaths and Marriages (BDM) has entered into a new six-year lease for 1,833 sqm over level 10, also commencing on 1 February 2021. The previous leases over 25,664 sqm to the Minister of Works were varied, largely to facilitate WAPOL’s relocation within Westralia Square from the upper levels to the lower levels, and the departure of the Department of Justice.

Securing WAPOL has meant that all the lower levels at Westralia Square, excluding the fitted-out show floor, level7, were now leased and it anticipated releasing the upper levels into an improving Perth market as they become available during FY21. (Data Source – Company Reports)

Veye’s Take

GDI’s balance sheet is in a strong position with an LVR on the Principal Facility of 15.6%, below the Board’s maximum LVR of 40% and the bank’s covenant of 50%. GDI has two good opportunities in the core of the Perth CBD. At Westralia Square it had increased the size and scale of the proposed development of the excess land to approximately 9,130sqm of the lettable area over 11 floors. RSI is turning up and MACD appears to be moving into the positive area. It can have the potential of growing strongly in near to medium term. Veye recommends a “Buy” on “GDI Property Group” at the current price of $1.205

Pacific Smiles Group Limited (ASX: PSQ)

TEAM VEYE | 15 DEC 2020 | ASX – PSQ

Pacific Smiles Group Limited (ASX: PSQ) – FY 2021 Guidance Update

Pacific Smiles Group Limited (ASX: PSQ) on 14 December 2020 provided the following update regarding FY 2021 year-to-date trading:

  • Same centre patient fee growth is approximately 14.6% for the financial year to date period ending 8 December 2020
  • Note that monthly same centre patient fee growth figures will no longer be provided given the return to normal dental services (with COVID-19 precautions) for all centres from 28 September 2020
  • 7 new centres already opened, with a further 7 sites committed for FY 2021
(Chart source: TradingView)

FY 2021 Outlook

In addition, Pacific Smiles provided the following update regarding the outlook for FY 2021: –

Pacific Smiles now expected patient fees growth of 25-30% (previously approximately 20%) and EBITDA (underlying) growth of 35-45% (previously approximately 25%), based on:

  • Strong year-to-date same centre fee growth performance as reported above
  • Assuming H2 FY 2021 trading without significant COVID-19 disruptions
  • The opening of approximately 14 new dental centres (previously 12)

Pacific Smiles Group on 6 November 2020 announced that it will, until further notice, disclose same centre patient fee growth figures on a monthly basis to provide transparency relative to the previously disclosed FY2021 guidance, which remains unchanged.

Same centre patient fee growth is 11.2% for the financial year to date period ending 31 October 2020 (excluding VIC 19.5% YTD).

In late September the Australian Health Protection Principle Committee (AHPPC) eased restrictions in metropolitan Melbourne from Level 3 to Level 1. This resulted in a return to normal dental services (with COVID-19 precautions) effective from 28 September 2020.

During October all centres were providing the full range of dental services. (Data Source – Company Reports)

Veye’s Take

All centres of Pacific Smiles were providing the full range of dental services during October. Earlier, in late September the Australian Health Protection Principle Committee had eased restrictions in metropolitan Melbourne from Level 3 to Level 1. This had resulted in a return to normal dental services (with COVID-19 precautions) effective from 28 September 2020. The Company was now expecting patient fees growth of 25-30% (previously approximately 20%) and EBITDA (underlying) growth of 35-45% (previously approximately 25%). As already narrated, the stock has become strongly bullish after breaking the neckline on inverse head and shoulder pattern it had made. It has closed above its strong supports at $2.37 and then $2.15. It can have the potential to start another leg up on crossing a minor resistance at $2.42. “Buy” on “Pacific Smiles Group Limited” at the price of $1.88 was given on 21 Oct 2020. It has already grown by more than 27% in less than two months till now. Veye maintains a “Hold” on “Pacific Smiles Group Limited” at the current price of $2.39

South32 Limited (ASX: S32)

TEAM VEYE | 15 DEC 2020 | ASX – S32

Quarterly Report September 2020

South32 Limited (ASX: S32) (“South32”) on 19 October 2020 released its Quarterly Report September 2020.

(Graphic Source – Company Reports)
  • Delivered a US$70M increase in our net cash position to US$368M, despite a build in working capital as commodity markets improved.
  • Lifted the suspension of our on-market share buy-back following another period of strong operating performance and further strengthening of our financial position.
  • Maintained FY21 production guidance for all operations.
  • Achieved record hydrate production at Worsley Alumina in the quarter and remain on-track to sustainably increase alumina production to nameplate capacity in FY21.
  • Continued to operate our aluminium smelters at their maximum technical capacity despite the impact of load-shedding.
  • Increased metallurgical coal production by 22% with Illawarra Metallurgical Coal benefitting from the successful return to a three longwall configuration during the prior quarter.
(Chart source: TradingView)
  • Delivered a 19% increase in manganese ore production as South Africa Manganese returned to full production following the nationwide COVID-19 restrictions in the prior quarter.
  • Progressed the sale of South Africa Energy Coal during the quarter, receiving a key approval and advancing discussions with Eskom to meet the material outstanding conditions.
  • Advanced study work for a potentially unconstrained development of the Hermosa project’s Taylor deposit, including its integration with the Clark deposit. We expect to provide an update, including the expected capital profile, permitting route and timeline to the first production following the conclusion of the Taylor pre-feasibility study in the June 2021 half year.(Data Source – Company Reports)

Veye’s Take

With another quarter of strong operating performance and the further strengthening of financial position, South32 have lifted the suspension of its on-market share buy-back. The Company’s capital management program has US$121 million remaining and recommencing its buy-back will deliver immediate value to the shareholders. During the quarter it continued its work to reshape and improve its portfolio, progressing the divestment of South Africa Energy Coal and entering into a binding agreement to divest its interest in the TEMCO manganese alloy smelter. The stock has become bullish on the daily t/f. It is trading above its 50 and 200 MA. Both MACD and RSI are positive. It faces strong resistance at $3.02. the crossing which, it can have the potential of growing nicely in short to medium term. Veye maintains a “Buy” recommendation on “South 32 Ltd” at the current price of $2.54

Disclaimer

Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. 

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