Energy & Materials Sector

• After Boral (BLD AU) rejected Seven Group (SVW AU)‘s cash/scrip Offer, Seven slammed the Independent Expert’s report, calling the Target Statement “unbalanced, selective and risks fundamentally misleading Boral minority shareholders“.
• Seven has now waived certain tendering thresholds, increasing the cash terms to A$1.70/share from A$1.50/share. Boral will also pay a fully-franked dividend of A$0.26/share, providing A$0.11/share of franking credits. 
• The IE now considers the Offer to be reasonable. Boral’s board recommends shareholders to accept. This is done.

• EIA raised its crude oil price forecast for 2024 and 2025, cites higher global oil consumption outlook and concerns over geopolitical tensions.
• The agency also increased global liquid fuels production outlook for 2024 compared to the previous month.
• Increased forecast on US retail gasoline prices relative to March STEO, expects lower gasoline inventories and higher net exports drive price rise.

• ADF Group reported Q4 & FY24 financial results this morning that beat our expectations across the board.
• For Q4, revenue came in at $88.4M (+72% YoY) vs. our estimate of $77.1M and EBITDA came in at $15.5M (+164% YoY) vs. our estimate of $13.6M.
• FY24 marked another stellar year for ADF as it benefits from infrastructure spending across North America and the automation capex program at its Terrebonne facility.

• GeoPark has submitted a binding offer to acquire a non-operated Working Interest in unconventional blocks in the Neuquen Basin in Argentina.
• The offer has been accepted by the seller and the parties are working on an exclusive basis towards execution of definitive agreements.
• The completion of the transaction could occur in 3Q24 

• 1Q24 production of 18,518 bbl/d was in line with our expectations.
• Production over the last 30 days was 20.5 mbbl/d with the recently drilled 17H well, now on pump, delivering 4,500 bbl/d.
• This bodes very well for 2Q24 production given that the 18H well is expected to commence production in May.

• Copper supply facing headwinds with a shortage of copper ore which has led to spiraling copper refining margins.
• Copper futures trading sharply higher than cash prices and term structure for copper futures has steepened. 
• Gold to copper ratio can be used to express a bullish view on copper prices with relatively lower risk compared to a straightforward long copper position. 

• The bullish outlook we initiated in early November 2023 remains intact. The SPX and QQQ still refuse to close below their 20-day MAs/21-day EMAs for more than 2-3 consecutive days.
• Even if/when they do, important supports are close by, including 4983-5050 on the S&P 500 and $425-$433 on QQQ (gap supports from 2/22/24). Anything above 4800 SPX is a buy.
• We continue to get an ever-increasing number of global indexes/Sectors with long-term breakouts, the latest being the MSCI Emerging Market and Frontier indexes. Clearly risk-on behavior.

• The farm-out transaction with Energean has now completed.
• Chariot has received the US$10 mm cash upfront payment and retains 30% of in the Lixus licence (where the Anchois project is located) and 37.5% of the Rissana licence, offshore Morocco.
• A rig contract has also been signed with Stena Drilling to drill the high impact Anchois-East appraisal and development well in 3Q24.

• 1Q24 production was 21.9 mbbl/d in line with our expectations.
• Production at the end of March was ~23 mbbl/d.
• Net cash of US$193.6 mm (US$176.3 mm unrestricted) was high given that the company sold only 1.8 mmbbl in 1Q24 with inventory building-up ~0.21 mmbbl vs YE23 to 0.9 mmbbl.

• With three-quarters of the review period complete, there could be a bunch of changes across the S&P/ASX family of indices in June.
• The Red 5 Ltd (RED AU) / Silver Lake Resources (SLR AU) merger could lead to an ad hoc change prior to the implementation of the June rebalance.
• There will be 1.6-25 days of ADV to buy from passives in the inclusions while the impact on the deletions will range between 0.8-11 days of ADV.

• Investics Research will initiate coverage of the materials sector in April 2024, starting with iron ore and then gold, coal, and steel in subsequent months (in that order).
• The areas of coverage on asset classes will encompass the underlying commodity and the associated equities. 
• Areas of differentiation would include in-depth coverage of all equities (small/mid and large cap) and actionable tactical ideas on the commodity.

• OceanaGold Philippines (OGCP000D PM) is looking to raise up to US$140m in its Philippines IPO.
• OceanaGold Philippines (OGPI) is a producer of gold and copper in the Philippines, and a subsidiary of OceanaGold Corporation, a Toronto Stock Exchange (TSX) listed gold mining and exploration company.
• In this note, we talk about the company’s historical performance and share our quick thoughts on valuation.

• Alpha Metallurgical Resources, a supplier of metallurgical products for the steel industry, closed its fourth quarter with adjusted EBITDA of $266 million and achieved over $1 billion in adjusted EBITDA for the year.
• This is the second consecutive year in which the company attained such a milestone despite facing considerable challenges during the year.
• Alpha highlighted the robustness of its management approach which included proactive identification of issues and proactive response plans that ensured minimal impact on performance.

• West Fraser produces lumber for the construction industry and also manufactures wood-based products such as engineered wood, panel products, and pulp and paper products.
• In the fourth quarter of 2023, the company posted mixed results across its business segments.
• Its North American engineered wood business segment displayed strength while soft demand affected its North American lumber products.

• Israel Chemicals Ltd.
• (ICL) had faced various operational challenges during the fourth quarter mostly due to the war in Israel.
• Despite these obstacles, they successfully maintained good production levels.

• This is our first report on Eagle Materials, a U.S.-based producer and distributor of building materials.
• The company reported record revenues in its third quarter for the fiscal year 2024, marking its robust financial performance and continuing to maintain and widen its low-cost producer strategy.
• With revenues reaching $559 million, up 9%, and adjustable earnings per share (EPS) rising 16% to $3.72, Eagle Materials marked another successful quarter.

• Kinross Gold reported a robust fiscal year 2023, where the company met its targets and is well-positioned for the year ahead.
• Kinross Gold’s operations are performing well, as are its projects, which are aligning with budget and timing.
• The company is generating substantial free cash flow and is successfully de-levering its balance sheet.

• NewMarket Corporation, a petroleum additives company, recently reported their full-year and fourth-quarter results for 2023.
• The company’s net income for the fourth quarter of 2023 was $80 million, a decrease from the previous year’s fourth quarter net income of $91 million.
• This decrease in operating profit was primarily due to higher operating costs and lower shipments partially offset by lower raw material costs.

• Axalta Coating Systems Ltd.
• reported Q4 net sales increasing by 5% year-over-year, amounting to $1.3 billion with contributions from both of its key business segments – Mobility Coatings and Performance Coatings.
• This increase is further evidence of the impressive quarterly performance that Axalta has had, which includes a seventh consecutive quarter of mobility volumes growth, indicating the recovery of the automotive industry and successful reshaping of the company’s portfolio.

• Azure Minerals (AZS AU) shareholders have overwhelmingly approved the dual-track bid from Sociedad Quimica y Minera de Chile (SQM US) and Hancock. The scheme offer is A$3.70 per share.
• The shares fell 7%, seemingly due to concerns about FIRB approval sparked by FIRB’s request for an extension on 3 April and today’s AFR article on China’s Australian lithium holdings. 
• FIRB approval should be forthcoming due to Tianqi Lithium (9696 HK) small indirect interest in Andover, Lithium Power International (LPI AU) precedent, and SQM and Tianqi’s strained relationship. 

• Nearing the halfway mark in the review period, we see 3 potential changes for the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) at the June rebalance.
• Passive trackers will need to buy between 1.2-4.5 days of ADV on the inclusions and sell 0.9-1.3 days of ADV on the deletions.
• Berli Jucker (BJC TB) continues to be a close add on liquidity while Gulf Energy Development (GULF TB) and Intouch Holdings (INTUCH TB) continue to be close deletes.

• The Permanent Production Facility (PPF), with a capacity of 3,000 bbl/d of liquids, has been commissioned and the Anshof-3 well has recommenced production at a rate of 134 bbl/d with no water.
• The operation has been undertaken in line with expectations and within budget.
• The oil production rate at Anshof-3 is 16% above the rate prior to shut-in.

• SenseTime Group (20 HK) is a potential deletion in June while Zijin Mining Group Co Ltd H (2899 HK) is a potential inclusion.
• For yet another review, BeiGene (6160 HK) is a close add with the Velocity Test determining if the stock will be added to the index or not.
• Estimated one-way turnover at the rebalance is 2.95% resulting in a one-way trade of HK$1.6bn. Official capping will be based off the close of trading on 4 June.

• Opposition’s probable win in the election sparks concerns about Value-up initiative’s momentum. However, market sentiment doesn’t universally echo these worries.
• Value-Up stocks’ recent corrections likely stem from Q4 dividend arbitrage liquidation, rather than election result concerns.
• Post-Election, even if the opposition wins, the left-leaning Value-up program might continue, limiting the opposition’s influence, as seen in recent National Pension Service flows.

• 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: Jastec Co Ltd (9717 JP), Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), Genex Power Ltd (GNX AU), QV Equities Ltd (QVE AU), China TCM.  
• Lowest spreads: Roland DG Corp (6789 JP), Tietto Minerals Ltd (TIE AU), Newmark Property REIT (NPR AU), Mma Offshore (MRM AU), CPMC Holdings (906 HK), Pact Group Holdings (PGH AU). 

• Discussion on progress of Beetaloo project and update on FID, discussion on outlook for gas supply in east coast Australia, comments on recent substantial shareholder notice from Sheffield Resources.

• Sealed Air (SEE) is a disaster in motion: its entire business is facing extinction as customers move away from the thin-film plastics the company makes.
• Sealed Air’s e-Commerce business has collapsed as Amazon has moved away from the single-use plastics, formerly ever present in its packaging. 
• California just passed two recycling and labeling bills that we think will make Sealed Air’s products unlikely to be used in the State and possibly in the US as a whole.

• Tredegar Corporation has been selling off businesses, annuitizing pension plans, and seeing key executives retire in recent years
• With only two remaining businesses, the company is estimated to be worth $11-13 after accounting for debt, before tax implications
• These actions indicate a significant shift in Tredegar’s strategy and possible future liquidation piece by piece

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• I tally 52 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Four new deals discussed on Smartkarma: Austal  (ASB AU)‘s spurned Offer; Best World (BEST SP)‘s Exit Offer; Isetan Singapore (ISET SP)‘s parent Offer; and (maybe) Langham Hospitality (1270 HK)‘s privatisation. 
• Key updates took place on: Azure Minerals (AZS AU), Genex Power Ltd (GNX AU), IntelliCentrics Global Holding (6819 HK) and JSR Corp (4185 JP).

• Aptar Group, Inc. delivered solid core sales growth of 2% in Q4 2023, reaching an adjusted EPS of $1.21 per share, which marked a progression from past results.
• The increase was attributed to a record year for the company’s proprietary drug delivery systems and its fragrance dispensing technologies.
• Aptar achieved an increased adjusted EBITDA margin of more than 21%, marking a 3-point elevation from the prior year, backed by robust growth in the pharmaceutical end markets.

• Globus Medical, a leading musculoskeletal solutions provider, has reported record revenues of $1.569 billion for the full year 2023, marking a growth of 53% compared to the previous year.
• The strong performance includes four months of sales after its merger with NuVasive.
• This remarkable growth maintained the company’s industry-leading profitability, generating a record non-GAAP EPS of $2.32 and an adjusted EBITDA of 30%.

• Valvoline Inc., a leading worldwide marketer and supplier of premium branded lubricants and automotive services, reported robust results for the first quarter of fiscal 2024.
• The company’s strong performance was marked by a robust top-line growth with system-wide store sales growing 12.3% to $723 million.
• Both company and franchise same-store sales expanded respectively with 6.1% and 8% growth.

• OPEC+ decides to keep output targets intact till June. Iraq and Kazakhstan vow to compensate for overproduction.
• OPEC+ pressed its members to improve compliance with production quotas in Q22024.
• Expansion in US crude stockpiles slightly dampens the bull run of oil prices. While gasoline and distillate drawdowns come in better-than-expectations.

Indika Energy’s FY 2023 numbers were soft as projected, owing to lower coal prices and the impact of the new licence for 91%-owned PT Kideco Jaya Agung. While Indika’s financial risk profile deteriorated significantly, the credit metrics remained robust within the rating category. Liquidity stayed sound.

The company should have a more difficult year in FY 2024, with decreased selling prices, revenue and earnings expected. That said, we still believe Indika can generate positive FCF, given its low-cost position.

The company is set to redeem the c. USD 294 mn outstanding USD 5.875% 11/24 notes on May 3rd at par. While the redemption will be leverage neutral, we view the move as credit positive. Indika will only have the USD 2025 bonds remaining after the 2024 notes redemption, and these can be almost fully funded by the holdco’s cash position.

Medco Energi’s FY 2023 numbers were acceptable in our view. The top line and margins softened, weighed down by reduced oil & gas (O&G) selling prices and slightly lower production volumes. FCF was negative and net debt increased, owing to the acquisition of a 20% stake in two O&G blocks at Oman in December. While leverage weakened, Net Debt/EBITDA remained acceptable at 2.5x at FYE 2023.

We believe earnings may continue declining in FY 2024, as management has guided for production to decrease further (mainly driven by lower working interest at Corridor Block PSC). Still, we believe Medco can generate slightly positive FCF in FY 2024 if it does not undertake new acquisitions. Liquidity is sound, and we note positively that the company’s sizeable equity stake in copper and gold mining JV Amman Mineral Internasional (listed on IDX) would provide it with meaningful financial flexibility if needed.

We revise our LARA to “Medium Risk” from “High Risk”, considering Medco’s longer reserve life and track record of proactive debt management.

• Alternus Clean Energy and Acadia Energy have announced a joint venture to co-develop 200 MW of Sustainability Hub™ microgrid projects in New York State.
• Acadia has a pipeline of 1.5-2.0 GW of renewable energy projects in New York, with an average size of 20-50 MW per project.
• The partnership aims to develop and operate a portfolio of scalable microgrid projects over the next two to three years, which are expected to begin achieving commercial operations within two years.

• We believe the new restructuring plan of the Hanwha Group is likely to have a positive impact on Hanwha Corp but could negatively impact Hanwha Ocean. 
• Our NAV analysis of Hanwha Corp suggests NAV of 3.2 trillion won or NAV per share of 43,168 won, which is 50% higher than current share price. 
• The biggest component of the valuation is Hanwha Corp’s 34% stake in Hanwha Aerospace which is worth 4.1 trillion won. (187% of Hanwha Corp’s market cap). 

• USA’s Strategic Petroleum Reserves (SPR) is currently at its lowest in 40 years. Should this be a source of concern? Perhaps not.
• USA is the world’s largest producer of crude oil. From being vulnerable to imported oil, US has become self-reliant.
• SPR expressed differently now, stands at 188 days of net imports compared to less than 100 days as was seen in the 1980s, 1990s, and early 2000s.

• The Discounts to NAV of covered holdcos mainly widened during March. Discounts to NAV: C.F.Alba, 47.3% (vs. 47.1%); GBL, 38.15 (vs. 37.7%); Heineken Holding, 16.7% (vs. 16.5%); 
• Industrivärden C, 1.4% (vs. 4.4%); Investor B, 6.1% (vs. 5.6%); Porsche Automobile Holding, 45.4% (vs. 43.7%). Rio DLC spread tightened to 24.9% (vs. 25.6%), and on 26 March reached 27.7%.
• What seems interesting: listed assets vs. Industrivärden C and the Rio DLC (long RIO LN/short RIO AU).

• Chinese authorities are to limit steel production while pushing forward industrywide structural adjustments as steel mills suffer from growing losses amid sluggish demand.
• Several ministries led by the National Development and Reform Commission (NDRC) Wednesday said regulators will continue efforts to control crude steel production this year, focusing on energy conservation and carbon reduction.
• The authorities will foster industry strengths and weed out weak players to promote the structural adjustment and optimization of the steel industry.

• SigmaRoc (SRC) is a European aggregates/limestone operator with a strong investment opportunity due to a recent transformational acquisition
• SRC is trading at a favorable valuation compared to US competitors and has outperformed in terms of EPS growth and cash flow conversion
• SRC has potential for significant returns over a 3-year period supported by strong cash generation, pricing power, and limited downside risk, making it an attractive investment prospect for growth and value appreciation

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Panoro has agreed heads of terms for the award of Block-23 in EG. Panoro could hold up to 80% WI in the block.
• There will now be a period of exclusive negotiations to finalise a Production Sharing Contract.
• Block EG-23 is located offshore Equatorial Guinea north of Bioko Island and adjacent to the producing Alba gas and condensate field.

• Omai announced its initial PEA on the Wenot Open Pit, reporting a highly profitable, low capex project, with substantial upside.
• The PEA reported a low AISC of US$1,009/oz, IRR of 19.8%, and an after-tax NPV5% of US$556M (at US$1,950/oz Au).
• The average annual production is expected to be 142Koz over a 13-year mine life, mining an average grade of 1.51 g/t Au at 92.5% recovery.

• ADF Group will be reporting Q4 & FY24 financial results on April 11th before market open.
• For Q4, we are expecting revenue of $77.1M (+50% YoY), gross margin of 22% (vs.
• 18% last year), and adjusted EBITDA of $13.6M (+132% YoY).

• Acquisitions are expected to remain a centerpiece of management’s three-pronged strategy to increase scale in the asset base, reduce outstanding debt, and ultimately position the company to return cash to shareholders.
• The Stronghold acquisition in 3Q22, followed by the Founders acquisition in 3Q23, added operational scale and inventory depth on the southern portion of the Central Basin Platform (CBP).
• Together with Ring’s Northwest Shelf (NWS) assets, the inventory provides a diverse set of horizontal and vertical development opportunities.

Anton Oilfield’s FY 2023 results were strong, with revenue growth accelerating to levels not registered since H1/19. The strong FCF boosted the cash balance. The company’s financial risk profile improved significantly, with Net Debt/EBITDA below 1x and healthy interest coverage ratios. Liquidity is adequate.

We expect the business’ positive momentum to continue in FY 2024. H1 is projected to be significantly better y-o-y, while H2 is anticipated to improve only marginally due to the high base effect.

• Oil prices are buoyant as the market largely expects OPEC+ to keep the supply cut policy intact till June. 
• Global oil demand outlook improves as the US and China see pick up in manufacturing activity after one-and-a-half years and six months, respectively. 
• Russia decides to focus on reducing oil output rather than exports in Q22024, implying a surprise shift in policy.  

• Berry Global is a leading manufacturer of protective packaging solutions, specializing in rigid plastic containers, flexible packaging, and non-woven fabrics
• The company has a global presence with over 280 facilities across different countries and employs about 47,000 people
• Despite challenging market conditions, Berry Global presents a promising risk/reward opportunity with a potential upside IRR of 15-25% and resilient Free Cash Flows

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Dynacor is entering its next phase of growth as it continues to expand production capacity and move beyond a single asset.
• DNG has a stellar track record over the last decade, highlighting the strength of its business model, its ability to navigate tough jurisdictions, fund growth using cashflow, and returning capital to shareholders.
• DNG has a strong balance sheet with $23M in cash, $51M in working capital, and negligible debt.

• Ocean Power Technologies (OPT), a company specializing in marine power and data solutions, announced a new initiative called Merrows.
• A major hurdle in maritime security is maintaining awareness of everything happening in and around our oceans.
• This requires collecting and transmitting vast amounts of data.

The Metals Company (TMC) is approaching a critical phase in its development. As key milestones are achieved, so the project will be de-risked and the valuation expand. Of particular note are the anticipated award of an exploitation licence and physical nodule collection, which management expects to commence in Q126.

• In what is a surprising move to me, Murakami-san has gone substantial on JSR Corp (4185 JP) with the vast majority of his stake purchased at a spread of <0.05%.
• As suggested in JIC Launches a NOT-¥1trln Tender Offer for JSR (4185). Welcome? Yes. Overwhelming? Meh, the deal price was not overwhelming. It got less so as the market rose.
• But this is an odd target. High float. No competition. Would take a lot to block or force the bumpitrage, which suggests appraisal rights or a “technicality.” 

• Murakami’s City Index Eleventh entity reported a 5.11% position in JSR Corp (4185 JP). The share purchases started on 19 March, the day of the tender start.
• Murakami’s average buy-in price of JPY4,346.22 per share is broadly in line with the JPY4,350 tender offer. 
• Murakami’s disclosure suggests two possibilities: starting an activist campaign for a bump or pursuing the appraisal process to determine a fair value. We think the latter is likely. 

• We remain bullish on the S&P 500 and Nasdaq 100 (QQQ), as they both refuse to close below their 20-day MAs or 21-day EMAs for more than 2-3 consecutive days.
• Once we do get 2-3 closes below the 20-day MAs on SPX and QQQ, it would mark the beginning of a pullback (a potentially rapid one, at that)
• Next supports currently at 4983-5050 on the S&P 500 and $425-$433 on QQQ (gap supports from 2/22/24), but anything in the 4800-4930 SPX range is a buyable pullback.

• The best combination of events for TPL is energy prices and production going up. This year, production levels in the Permian Basin recovered quickly from the seasonal decline.
• The hinderance to TPL’s quarter could come from the price of natural gas, which declined throughout much of the first quarter due to the warmer winter weather
• A majority of TPL’s revenue is from crude oil and natural gas royalties with production becoming the biggest factor in each quarter

• The FY24 guidance reflects a self-funded development and debt repayment programme.
• While a reduced capital programme, we believe this is a prudent strategy with upside optionality should additional funds from the Bulu sale or higher oil prices materialize.
• As a result of the Bulu sale not completed yet, Criterium is carrying more debt than we expected (the repayment of US$5.5 mm of debt in March would have also triggered a US$3.8 mm debt write down).

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.

• China Hongqiao
• Nickel Industries