TOL - 28th Apr, 2023
Buy Hold Sell: 3 rockstars (and 2 past their prime)
In this episode, Eley Griffiths Group's Tim Serjeant and Tribeca Investment Partners' Todd Warren analyse five commodities-focused stocks.
The music industry can be savage. The majority of artists work their entire lives to make hardly any money at all. And then there are those who produce a truly great song - only to become a one-hit-wonder.
Today's songwriters, desperate to appeal to the TikTok generation, are starting songs with short attention-grabbing choruses or hooks in a bid to boost the popularity of a track. The Buggles may have been on to something when they sang "Video Killed the Radio Star."
Come to think of it, Australia's resources and materials sector isn't so different. Many miners snag a fertile area of land, report a good drill hit, and rise to stardom, before crashing back down to earth.
So in this episode, Bell Direct's Grady Wulff was joined by Tribeca Investment Partners' Todd Warren and Eley Griffiths Group's Tim Serjeant for their analysis of three resources-related stocks that have seen their share prices soar over the past 12 months.
Plus, for a challenge, we asked them to name two stocks they believe are now past their prime.
Note: This episode was recorded on Wednesday 19 April 2023. You can watch the video, listen to the podcast or read an edited transcript below.
Edited Transcript
Grady Wulff: Hello and welcome to Livewire's Buy Hold Sell. I'm Grady Wulff, and today we'll be discussing three rockstars. Yes, pun intended. These stocks have seen their share prices soar over the past 12 months, as well as two stocks that may be a little bit past their prime. To do so, I'm joined by our experts, Tim Serjeant from Eley Griffiths Group, and Todd Warren from Tribeca. Gentlemen, thanks for joining me today.
The first stock that we have today is Stanmore Resources. It's up around 67% over the last 12 months. Tim, starting with you right now, is it a buy, hold or sell?
Stanmore Resources (ASX: SMR)
Tim Serjeant (HOLD): Stanmore's a hold. Look, terrific acquisition, the South Walker assets from BHP and Mitsui, but I think the met coal outlook from here's a little more balanced, as are probably vendor expectations, and I think the market would anticipate that Stanmore is a buyer of further met coal assets in time.
Grady Wulff: Now, coal prices have come down and have been in a downward spiral since September highs last year. Todd, buy, hold or sell for Stanmore Resources?
Todd Warren (BUY): We're a buy on Stanmore. Tim's touched on the acquisition and it was a cracker, and there is an expectation they may well come to the table again with further BHP assets. I don't think they need to do that and we are actually a bit more excited about the met coal outlook. Obviously, these guys produce a lot of met coal and it's pretty difficult to get pure-play exposure. We actually think the market feels pretty good with a lack of supply coming from other sources, so we actually think the price feels pretty good as well. So, we're a buyer.
Patriot Battery Metals (ASX: PMT)
Todd Warren (SELL): That's a tough one. I'm going a sell. It might come back to bite me. I think they've clearly done very well with the drill bit, so credit where it's due, and there is an awful lot of lithium to be found in that part of Quebec where they are in Canada. The biggest challenge they will face is permitting. It is so difficult to permit in that part of the world. Nothing comes out of the ground easily, so that's going to be a big headwind and I think they're going to need more money, so they're going to be coming to the market for that.
Grady Wulff: Tim - Todd touched on the fact that they have assets in Canada, the US and they're dual-listed in Toronto and the Frankfurt stock exchanges. Is this a buy, hold or sell for you?
Tim Serjeant (HOLD): I think it's a hold. Quebec's a reasonable mining jurisdiction, but as Todd touched on, permitting and the environmental side of things are clearly going to be the challenge. It's pre-resource at this stage, but I guess the drill intersections have had the industry take notice of it. So it is something that is on people's radars and probably not one I want to bet too heavily against at this point.Perenti (ASX: PRN)
Grady Wulff: Now we're going a little bit left field with a mining services company, Perenti. Its share price has lifted more than 63% in the last 12 months. Buy, hold or sell on Perenti?
Tim Serjeant (SELL): I'm going to say sell. I think there's actually a little bit more earnings upside in Perenti, but they're at the top end, I think, of their margin and return on capital targets. And the challenge for mining services operators that are capital intensive is that your client wants you to spend capital, but your shareholders want the free cash flow coming back to them, and those two are incongruent at times. So I'm going to say, sell.
Grady Wulff: Todd, underlying profits are up 75% to $61 million in the first half of FY23. Buy, hold or sell?
Todd Warren (HOLD): I'm going to go hold. Tim touched on the challenges that you face in the services sector, but they have done a cracking job. They've upgraded three times this year. There's probably more to come. They do have a very strong business in Africa, of course. They've just won a couple more contract extensions from both Newcrest and IGO here in Australia and in Canada. And they're running with pretty good margins right now. So is there a lot of meat still on the bone? Not as much as there was. It's had a good run, but still think there's some upside to it.
Grady Wulff: Now, we did ask our fundies to come along with a stock that's maybe past its prime. Todd, who's past its prime for you?
Strike Energy (ASX: STX)
Todd Warren: I'm going to go with Strike Energy. Again, it might come back to bite me. Strike's been right in the sweet spot of activity in the Australian energy sector, being in the Perth basin. We've had M&A activity with Warrego. They are the operating partner of Warrego on that asset, and of course, that's brought attention to the name. We think it's fairly fully priced. We think their plans around their urea asset are ill-founded and you're already paying a lot for a resource in the ground, at a time when others are looking for it, but you're already fully priced.
Grady Wulff: Tim, what are you selling off at the moment? What's past its prime for you?
Allkem (ASX: AKE)
Tim Serjeant: I'm going to say Allkem, which is a lithium stock that people would know well. I think they're at an interesting juncture, going to quite a capital-intensive phase, where they're going to be building and developing a number of new projects over the coming years. And the lithium industry has taught us that execution typically takes a bit longer and costs a little bit more. That's not to say I don't think they'll do it, I think they'll do a pretty good job. But the free cash flow expectations the market has, for me, are a little bit high. And there are 20 people that cover the stock and 18 have a buy. So I'm happy to go the other way there.
Grady Wulff: Well, you heard it from our fundies here first. That's all we have time for today in this episode of Buy Hold Sell. I hope you enjoyed it as much as we did filming it. If you did, why not give it a like? Remember to subscribe to our YouTube channel. We're adding so much great content every single week.
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Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
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Livewire gives readers access to information and educational content provided by financial services professionals and companies (“Livewire Contributors”). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.
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5 stocks mentioned
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Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
Livewire Markets
Buy Hold Sell is a weekly video series exclusive to Livewire. In each episode two fund managers give their views 'Buy, Hold or Sell' on five ASX listed companies. Not recommendations, please read the disclaimer and seek advice where appropriate.
Expertise
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