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Does Perenti’s expansion at Cowal put it further into value-play territory?

Tue 07 Jun 22, 11:27am (AEST)
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Key Points

  • New contract is one of the largest underground mining projects in Barminco's history
  • Perenti has launched an on-market share buyback of up to 10% of its shares
  • Perenti’s board believes the company’s current share price significantly undervalues the inherent value of the business

Perenti (ASX: PRN) – formerly Ausdrill - was up 21.15% an hour out from open today after the diversified mining company disclosed that the Barminco mining business has been awarded a $520m contract for underground development and production works for gold giant Evolution Mining's (ASX: EVN) Cowal project in NSW.

To the uninitiated, Barminco is a global underground mining services business, with operations in Australia, Africa and North America, and is currently conducting diamond drilling services at Cowal.

This new contract - one of the largest underground mining projects in Barminco's history – is for an initial term of four years, with a contract commencement of early July 2022.

Second portal

Perenti CEO Mark Norwell expects the new contract to significantly expands Barminco’s scope at the site to include the development of a second portal, all underground development and production works, and associated underground mining services required to support the continued mill feed of underground ore.

"This contract award represents not only a significant expansion and continuation of our first underground contract in New South Wales but is also a fantastic opportunity for Perenti to build on our strong working relationship with Evolution, one of Australia’s premier gold mining companies."

Buyback

News of a major new contract this morning was also accompanied by revelations Perenti has launched an on-market share buyback of up to 10% of its shares on issue.

The exact timing and actual number of shares to be purchased over the next 12 months will be subject to market conditions, available trading windows, the prevailing share price and other considerations.

Underground earnings base

Given that the Cowal project represents a significant improvement to the company's Australian underground earnings base - which will generate strong project cash flows and returns in support of our capital allocation and investment - investors should watch out for broker re-ratings later this week.

Management noted, “our purpose is to create enduring value and certainty for our clients, our people, our shareholders and the communities in which we work."

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Perenti share price over 12 months.

 

What brokers think

Perenti’s board believes the company’s current share price significantly undervalues the inherent value of the business, and some brokers tend to agree.

Based on the two brokers covering Perenti (as reported on by FN Arena) the stock is currently trading with 42.9% upside to the target price of $1.00.

Based on Morningstar’s fair value of $1.05, the stock appears to be undervalued.

Consensus on Perenti is Strong Buy.

While the stock is currently trading well under half ($0.815) its five year high of $2.66 back in October 2018, Perenti is up 5.30% over the last 12 months.

The company recently revised revenue guidance to $2.4bn from a previous $2.2-2.4bn and earnings guidance to $170-175m from a previous $165-185m.

As a result, Macquarie decreases its earnings forecast -4% for the current financial year, but retains Outperform rating, while the target price decreases to $1.00 from $1.10. (25/05/22).

Interim results were a slight beat versus UBS expectations, and the broker retains a Buy rating and $1.00 target price.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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