Energy & Materials Sector

• Having lagged competitors on share price basis since Holcim/Lafarge merger, on 29 January, Holcim (HOLN SW) announced plans to spin-off and list its North American business in the US.
• Infrastructure and housing are reponsible for U.S. comparables to trade on 14.7x median EV/NTM Fwd EBITDA, in sharp contrast to 5.4x median EV/NTM Fwd EBITDA of European comparables. 
• Even if valuing the RoW business at the lower median European multiples, the spin-off should be value accretive. My fair value estimate of CHF 84.47/share represents 25.7% upside.

• “El Nino has peaked and is declining, indicating a return to neutral in the southern hemisphere autumn 2024 (March-June),” the Australian Bureau of Meteorology wrote last week.
• Even more the institute forecasts that El Nino may completely dissipate by June.
• For our clients, that won’t come as a surprise as we highlighted this scenario over a couple of weeks.

• Empire Energy Group Limited (ASX:EEG) is an oil and gas producer/developer with onshore Northern Territory (NT) and US oil/gas production assets.
• EEG has the largest tenement position in the highly prospective Greater McArthur Basin, which includes the Beetaloo Sub-basin.
• The investment case continues to build with a FID point on the Carpentaria Pilot Project tantalisingly close. 

• Drilling at Loukos in Morocco is expected to start around the end of 1Q24 with Chariot expecting the imminent approval of environment permit for up to 20 drilling locations.
• The first prospect to be drilled will be Gaufrette (in line with previous indications).
• Energean and Chariot are negotiation a contract for a drilling rig for the 2024 campaign.

• Trigon announced stellar drill results from its ongoing at-surface confirmatory drill campaign.
• Last week, Trigon Metals Inc. (TM:TSXV) announced strong confirmatory drill results at its Kombat Mine in Namibia.
• Today’s drill results have successfully confirmed mineralized zones identified from the historical drill results.

• JSR Corp (4185 JP) pre-conditional tender offer from JIC is JPY4,350 per share. Since the deal announcement, the gross spread has averaged 7.7%.
• The wide gross spread reflects the risk in satisfying the pre-condition related to China SAMR approval and potentially shareholder approval due to Shin Etsu Chemical (4063 JP)’s re-rating.
• SAMR conditional approval would fit with the late February tender start timeline (at the earliest). Despite Shin-Etsu’s re-rating, the offer still looks reasonable.

• Adani’s $600 million acquisition of Sanghi Cement in August 2023 marked its significant debut in the cement sector, following controversies around the group’s infrastructure ventures.
• The Master Supply Agreement with Ambuja & pricing structure, based on cost plus a 10% markup, has raised concerns about lower EBITDA realizations for Sanghi Cement, deviating from industry norms.
• Issues surrounding potential profit loss (Rs 357 crore) and investor skepticism echo previous instances, like the NDTV case, where minority shareholders experienced less favorable terms compared to the promoter. 

• This is our first report on steel and metal products manufacturer, Commercial Metals Company.
• The company reported net earnings of $176.3 million or $1.49 per diluted share on net sales of $2 billion.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• We expected a blandiloquent but bletcherous bump for T&K Toka Co Ltd (4636 JP).  We got bletcherous.
• With the Hang Seng Index dipping below the 15,000 mark earlier this week, time to dust off some old school perspective with Benjamin Graham’s Net Nets.
• JIC CEO Yokoo reckons the JSR Corp (4185 JP) deal to be done by March-end. Language is vague. If that means to start by then, that’s still 30% annualised.

• This is our first report on oil and gas storage and transporation player, Plains All American.
• This represents an increase of $50 million to $100 million from their previous guidance range’s top limit.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• This is our first report on midstream assets developer, Western Midstream Partners (WES).
• The company has shown improvements in both adjusted gross margin and adjusted EBITDA due to increased throughput from all their operated assets and across all products.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Yesterday after the close, activist Murakami-san’s entity City Index Eleventh reported a 5.76% position in beleaguered-now-smallcap ferro-nickel and nickel producer Pacific Metals (5541 JP). 
• The company continues to lose a LOT of money. It is cheap at 0.4x book. 
• But there are interesting things going on. And Murakami-san has a…. uh…. history here.

Pan African Resources’ (PAF’s) production update of 22 January revealed H124 production of 98,458oz gold, compared with prior guidance of 94,000–98,000oz, Edison’s expectation of 96,000oz and a figure of 92,307oz in H123. For the moment, we have left our financial forecasts for H124 unchanged, seeing roughly equally balanced upside and downside risks to our estimates pending actual results on 14 February. However, we note that the gold price is currently trading almost US$200/oz above our assumed H224 level.

• Galp Energia has announced a second discovery of light oil in deeper and high quality reservoir sands at the Mopane-1X exploration well on PEL83.
• This follows the light oil discovery in shallower sands announced earlier this month.
• Busy programme on the Shell’s block (south of PEL83) Shell operates PEL 39 that is located just south of PEL83.

• ADX Energy (ADX AU)C; target price of A$0.65 per share: Drilling rig on location of high impact well by the end of January – A rig is expected to be mobilised to the high impact Welchau-1 drilling location during the last week of January.
• The total vertical depth of the well is only 1,800 m with a dry hole cost estimated at ~EUR5.1 mm.
• BW Energy (BWE NO): BW Offshore sells interests in BW Energy to BW Group – BW Offshore will sell 58,111,461 (22.52%) shares in BW Energy to BW Group at a price of NOK32 per share, resulting in total proceeds ~US$176 mm.

• There are 4 changes each for the IDX30 Index and the LQ45 Index at the upcoming rebalance to be implemented at the close on 31 January.
• The largest passive inflows are expected in Indofood CBP Sukses (ICBP IJ), Merdeka Battery Materials (MBMA IJ), Indah Kiat Pulp & Paper (INKP IJ) and Pertamina Geothermal Energy (PGEO IJ). 
• With only 4 days to implementation, there could be relatively big moves on stocks that have large flow/impact from passive fund trading.

• Foosung announced a rights offering worth 101 billion won. The estimated rights offering price is 7,850 won which is 22% discount to closing price on 25 January (10,070 won). 
• The rights offering will involve 12.9 million shares (13.7% of outstanding shares). Of the 101 billion won in rights offering, the company will use 88.3 billion won in facility investments.
• We are negative on Foosung overall and on the rights offering. Despite the company’s turnaround this year, there are concerns about share dilution plus valuations are not particularly attractive. 

• This is our first report on Aptar Group Inc., a leading global supplier of consumer dispensing, active packaging and drug delivery solutions.
• In the earnings call, the company reported core sales growth of 2% and double-digit EPS growth of $1.39 per share.
• These successes are largely attributed to high market demand for Aptar’s proprietary pharma dosing and dispensing systems as well as their fragrance dispensing technologies.

• Evolution announced a $43.5 million acquisition of non- operated working interest in the SCOOP/STACK unconventional development play in central Oklahoma on January 9, 2024.
• Our modeling suggests the accretive acquisition supports Evolution’s free cash flow profile and its dividend, which is a critical element of management’s total shareholder return strategy.
• The properties include ~1,550 BOE/d of production from ~230 producing wells on ~3,700 net leasehold acres as of the November 1, 2023, effective date.

• FY23 production was ~8.5 mbbl/d, implying ~9.5-9.7 mbbl/d in 4Q23. 
• The electrical issue at the ESPs on Dussafu has not been fully resolved and continues to negatively impact gross production.
• Valuation We are now forecasting US$85.5/bbl for Brent in 2024 (US$90/bbl previously) and we have paired back our FY24 production forecast from ~13.4 mbbl/d to 12.7 mbbl/d.

Pan American Silver (PAAS) provided an update on its FY23 operational performance and FY24 guidance. While total silver production came in below guidance at 20.4Moz and gold output of 883koz was within guidance, the main highlight of the results was the record Q4 gold sales of 270koz (FY23 894koz). FY24 production expectations for gold and silver are broadly in line with FY23 guidance ranges, while costs are seen growing further. Despite our expectations of near-term cost normalisation, industry cost pressures remain visible. We have therefore pared down our valuation of PAAS from US$23.5/share to US$22.0 on more conservative cost forecasts and reduced production projections, which is partly offset by our slightly more favourable commodity price assumptions.

• Five weeks ago, JIC announced a delay in the commencement of the Tender Offer to buy JSR Corp (4185 JP), originally scheduled to start by end-December 2023. 
• In the announcement, they said they expected the deal to start by end-February. In the press conference afterwards, JIC CEO Yokoo said “no particular issues with the Chinese regulator.” 
• He then added he expected the deal to be done by March-end. Language is vague. I expect that means to start by then, but even then, annualised is now 30%.

• In this insight, we discuss the sharp share price declines of rechargeable battery related stocks in Korea so far in 2024. 
• The top 20 market cap rechargeable battery related stocks in Korea are down on average 15.9% YTD, underperforming KOSPI which is down 6.7% in the same period.
• Many rechargeable battery related names in Korea continue to have lofty valuations. The 20 rechargeable battery names are trading at median P/E of 79.7x in 2023 and 39x in 2024.

Key points (machine generated)

• Calumet is expected to experience positive catalysts in the next six months despite facing challenges such as its MLP structure, operational issues, and credibility concerns.
• The company has the potential to generate significant EBITDA numbers from its Specialty and MRL divisions, indicating strong growth prospects.
• The Performance Brands and legacy refinery businesses are also expected to contribute to EBITDA, assuming favorable market conditions.

This article is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• The FY24 production guidance stands at 16.5-17.5 mbbl/d (we forecasted 18.6 mbbl/d assuming a moderate dry season) with US$135 mm capex (broadly in line with our expectations of US$130 mm).
• The FY24 production guidance assumes a dry season as severe as in 2023 with production of only 13 mbbl/d in 3Q24 and 17.5 mbbl/d in 4Q24.
• The Ecuador export route through the OCP will be operational in October (2 mbbl/d) while a new route via Yurimaguas to Bayovar (2 mbbl/d) could be operational in July.

• Rent.com.au Limited (ASX:RNT) is a purpose-led company seeking to empower home renters through its technology platform and a growing number of aligned transactional services.
• The company has provided a trading update noting that its RentPay rental payments platform had now processed $200m in payments since its relaunch.
• Achieving the $200m milestone comes just three months after passing the $150m mark, demonstrating a continued acceleration in the take-up of the platform. 

• I expected a blandiloquent but bletcherous bump from Bain. Discussed in T&K TOKA (4636 JP): Expect ANOTHER Blandiloquent But Bletcherous Bump From Bain. We got bletcherous. 
• But at a mere ¥10 uplift to ¥1,410, we did not get blandiloquent. That’s insulting. But as suggested in the first piece, there was NAVF Risk. And we got it. 
• NAVF agreed to sell its 24+% to Bain at ¥1,410 in return for being able to buy 15% of the bidco, fully-levered (i.e. they roll in at minimal cost). 

• In OreCorp: Silvercorp Switches To Off-Market Bid, after Silvercorp Metals (SVM CN) switched to an off-market Offer for Orecorp Ltd (ORR AU), I expected Perseus Mining (PRU AU) to counter. 
• Orecorp announced this morning Perseus (with 19.9% of shares out) has pitched an all-cash Offer of A$0.55/share, primarily conditional on getting to 50.1%
• Orecorp has responded by saying Perseus Offer is not superior to Silvercorp cash/scrip terms. Perhaps it’s Orecorp’s way of (temporarily) skirting the break fee and letting the market decide.

• T&K Toka Co Ltd (4636 JP) has recommended Bain’s revised tender offer of JPY1,410 per share, a highly disappointing 0.7% premium to the previous JPY1,400 offer. 
• Bain’s marginal bump was due to securing Dalton’s support through the Nichii Gakkan Co (9792 JP) playbook. Dalton will tender its shares and make a 15% re-investment in the offeror. 
• Shareholders representing a 60.82% ownership ratio, including share options, will accept, paving the way to success. With shares trading 4.7% above terms, it is time to move on. 

• Perseus Mining (PRU AU)’s competing all-cash takeover offer for Orecorp Ltd (ORR AU) is A$0.55, a 4.0% premium to the implied value of the Silvercorp Metals (SVM CN) off-market takeover offer. 
• The Board opines that the PRU offer is not superior. Since announcing the revised SVM scheme on 23 November, the PRU offer has averaged 3.0% lower than the SVM offer.
• The SVM offer, which closes on 23 February, has struggled to gain traction. PRU has the balance sheet to sweeten its offer and gain shareholder traction.   

Key points (machine generated)

• Apple’s focus on carbon-neutral products and use of titanium in iPhone 15 Pro is driving interest in titanium resources.
• Sovereign Metals’ discovery of the world’s largest undeveloped natural rutile deposit has attracted the attention of Rio Tinto, which recently became the largest shareholder in the company.
• Titanium is considered a critical material due to supply shortages and China-controlled supply chains, with its use in Apple products highlighting its growing importance. Investment in Sovereign Metals offers an interesting opportunity, especially given the lack of upcoming funding requirements and a discount to Rio Tinto’s entry price.

This article is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• In the world of 8-10% dividend-yielding commodities, Fortescue Metals (FMG AU) almost makes the cut. We would wait for a better entry point here despite iron ore strength.
• We are also mindful of the risks associated with capex in the green energy space to achieve zero emissions and ramp costs with the recent production increase.
• We believe numbers are at par, trading at 9.6x PE on the current spot price (130 USD/ton) with a 7% dividend yield ( assuming a 65% payout ratio). 

• A rig is expected to be mobilised to the high impact Welchau-1 drilling location during the last week of January.
• Welchau gross prospective resources have been independently estimated at 365 to1,128 bcf (ADX’s internal estimates: 212 to1,631 bcf).
• During 4Q24, ADX plans to drill the IRR-1 gas prospect with 38 bcf gross prospective resources or the LICHT prospect.

• In a soft-landing economic environment, history suggests that commodity indexes stay stable around the first rate cut then trend higher six months after.
• Historically, industrial metals tend to lag energy by several months.
• By contrast, prices of precious metals, especially gold, generally rise six months after the first rate cut then hit a temporary plateau —something we saw even during the extremes of the 2008 financial crisis and the recent pandemic. 

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads – GUPPY’s Inc (5127 JP), Hollysys Automation Technologies (HOLI US), Shinko Electric Industries (6967 JP), Probiotec Ltd (PBP AU), Irc Ltd (1029 HK), Genetron Holdings Ltd (GTH US).
• Lowest spreads – T&K Toka Co Ltd (4636 JP), Tietto Minerals Ltd (TIE AU), Benesse Holdings (9783 JP), Benefit One Inc (2412 JP), Orecorp Ltd (ORR AU).

• The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc. But that didn’t help. 
• SOUTHBOUND flows were bigly positive and NORTHBOUND flows a large net sell. Nevertheless AH Premia had their best week in ages as HK large caps, mid-caps, small-caps got shellacked.
• Now at new 52wk wides on A premia. Now within 3% of 5+ year highs.

• State Gas Limited (ASX:GAS) is a junior energy producer and explorer with assets concentrated in the Bowen Basin, Queensland.
• The Rolleston West CNG Project in the Bowen Basin is now in the final stage with mechanical completion and tie-in of the Rougemont-2/3 well anticipated within the next week to be followed by pre-commissioning activities.
• Importantly, first production and shipments are tantalisingly close and whilst the rate will initially be modest, up to 0.75TJd, the project has intrinsic growth potential (up to 1.7TJd) which could fund modest appraisal and evaluation works, particularly converting contingent gas to bankable reserves.

• The Korean government has introduced policies ahead of April’s elections, with a recent notable announcement addressing the “Korea Discount” by enhancing low PBR stock valuations.
• A leading proposal involves creating an index of low PBR companies. There are hints of listing ETFs tracking this index, with potential directives compelling pension funds to invest.
• Identifying early inclusions is vital. High-likelihood candidates are low PBR large caps with maintained earnings, dividends/share buyback potential, including Hyundai Dept, E-Mart, Hyundai Steel, IBK, Korean Re, & DL E&C.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Lippo Malls Indonesia Retail Trust
2. Vedanta Resources
3. ReNew Energy Global
4. China Jinmao Holdings
5. Geely Auto

and more…

Key points (machine generated)

• Franco-Nevada Corporation is a gold-focused royalty and streaming company operating in the mining and energy sectors.
• Despite not having any imminent corporate catalysts, it is considered a top-tier investment choice for exposure to precious metals.
• Managed by a world-class operator, the company is expected to outperform other large-cap precious metals stocks and physical gold. Its involvement in the sale of crude oil, natural gas, and natural gas liquids adds to its attractiveness for investors in the current economic climate.

This article is sourced from an online content aggregator through publicly available sources and is displayed below for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• • 4Q23 WI production of 23.1-23.5 mboe/d was comfortably within the management guidance of 22.9-24.6 mboe/d. • VAALCO held >US$120 mm in cash and cash equivalents at the end of December, up from US$103 mm at the end of September.
• The YE23 cash position was impacted by the fact the Egyptian sales during 4Q23 were for the domestic market rather than exported (domestic sales carry a lower value than exported cargoes).

• TIGER ETF (305540) rebalanced on January 11th, with Ecopro Materials correcting by 4%, contrasting a 20% surge from Jan 8-10. TIGER recorded net purchases aligning with a 2% inclusion weight.
• Preemptive positions by local hedge funds were observed from Jan 8-10, closing on the 11th. Despite a KOSPI decline and minimal sector movement, Ecopro Materials exhibited this unusual price pattern.
• Observing this pattern implies a potential recurrence during the March rebalancing of KODEX ETF. Notably, local hedge funds may initiate similar preemptive positions. We should consider this in position setup.

• Back on the 1st November, Nikolai Levitskii, Russian iron-ore play IRC (1029 HK)‘s chairman and largest shareholder, acquired 4.72% of shares out, lifting his stake above 30%, triggering an MGO.
• The Offer is conditional on Levitskii holding more than 50% of shares out. His intention is to maintain IRC’s listing. At the first close, he held 35.77% (5.16% had tendered). 
• The current spread is 9.2%. MIC, with 16.67% of shares out, has yet to tender. Nor do I expect them to. Plus IRC is on the OFAC sanction list. Avoid.

• Growth is expected to be fueled by robust performance in international markets. Management expects revenue growth for 2023 to cross 15% YoY.
• Pretax operating margins in Q42023 to get a boost from higher year-end digital sales and seasonal product and equipment sales.
• The analyst consensus on the stock’s growth is overwhelmingly bullish given the expectation of strong growth in international and offshore segments.

• Ocean Power Technologies, Inc. (OPT) substantially completed its research and development (R&D) phase and has witnessed meaningful progress in orders, pipeline, and backlog across its business.
• Additionally, the company has reallocated headcount toward execution and commercialization to bolster its next phase of evolution.
• OPT’s cutting-edge suite of products provides comfort against macro headwinds and also positions the company for commercial success and profitability in 2025.

• Pulsar Helium is raising C$4.255 mm of new equity through a placement of 18.5 mm new unit at a price of C$0.23 per unit.
• Each unit consists of one share and one warrant with a strike price of C$0.36 per share. The warrants have a duration of 24 months.
• The proceeds of the raise will allow the company to fund the well test of the high impact Jetstream#1 appraisal well scheduled to spud in February at the Topaz project in Minnesota. 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Tata Steel Thailand