Mining services stock MLG Oz could more than double
Gold Road Resources’s full year guidance is conservative, says Goldman
MLG Oz’s stock price could double
Euroz Hartleys has slapped a Buy recommendation on MLG Oz (ASX:MLG), with a price target set at $1.21, versus current price of $0.51.
MLG Oz is a $83 million market capped stock that provides mining services at 29 sites throughout Western Australia and the Northern Territory. The company owns around 150 trucks, 500 trailers and dollies, 100+ loaders and five crushing and screening plants.
The company’s revenue and earnings are ultimately driven by the volume of resource production at the mine sites, and Euroz is optimistic about MLG’s prospects based on improving conditions on the ground.
“Inflationary pressures are increasingly able to be passed. MLG’s better access to required labour is likely improving fleet productivity, a key margin driver,” said the broker.
“Process and systems upgrades implemented over the last few years can also drive efficiency improvements across the business.”
In the latest first half results, MLG has ticked a lot of boxes with EBITDA and EBITDA margin coming in above expectations.
First half revenue was $226.4m up 29% on pcp, EBITDA was $28.5m up 72% on pcp, and NPAT of $7.1m up 174.4% on pcp.
EBITDA margin also increased to 12.8%, up from 10.9% from the last half, tracking in the right direction towards a targeted 15%.
“While a 15% EBITDA margin target is still very much the focus, and the magic number to drive sustainable returns and generate free cash that is closer to shareholders, the expectation is that 2H 2024 margins are likely steady with 1H 2024, before further improvements anticipated in 2025,” said Euroz.
“Despite a few remaining moving parts, we maintain our Buy recommendation.”
GOR’s guidance is too conservative, says Goldman
Goldman Sachs meanwhile has a Buy recommendation on Gold Road Resources (ASX:GOR), with a price target of $1.95 (versus current price of $1.54).
Goldman noted that GOR has released a full year production guidance of 300-330koz, which is broadly in line with market consensus.
“We continue to see [this guidance] as conservative given the timing of ramping up the third pebble crusher, and improvement in mining labour conditions.”
GOR previously said that mining contractor MACA has been successful in the recruitment of labour to support the ongoing expansion of mining rates, with the workforce now at desired levels.
Access to ore remains the priority focus at the Gruyere project, where mining and production is guided to continue to ramp up through the first half of this calendar year, with stronger production performance expected for the second half.
“We reiterate that a slower recovery of mining operations (either from rain, or now resolved workforce issues) likely has lower gold production risk than perceived.
“Processing only stockpiles and pausing mining for the duration of the year would lower our CY24 production from 325koz to ~210koz, but still preserve >60% of CY24 free cash flow,” said the note from Goldman.
Goldman says the forecast for GOR’s CY24 up to CY27 remain attractive versus its peers, and this supports upside to the stock’s outlook.
“Our 12 month price is $1.95/share, and we retain our Buy rating with GOR,” said Goldman.
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