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Research: Metals & Mining
Since our last note on the company, Lepidico has successfully completed extensive further pilot plant trials at larger scale, raised over A$19m in equity, updated and improved the economics of its Phase 1 Plant project and updated and upgraded its mineral resources (and reserves) at Helikon 4 and on surface (in the form of dumps etc) at both Rubicon and Helikon. This note updates our valuation of the company for all of these developments plus new lithium price assumptions (below).
Lepidico |
Everything moving all at once |
Valuation update |
Metals and mining |
14 February 2023 |
Share price performance
Business description
Next events
Analyst
Lepidico is a research client of Edison Investment Research Limited |
Since our last note on the company, Lepidico has successfully completed extensive further pilot plant trials at larger scale, raised over A$19m in equity, updated and improved the economics of its Phase 1 Plant project and updated and upgraded its mineral resources (and reserves) at Helikon 4 and on surface (in the form of dumps etc) at both Rubicon and Helikon. This note updates our valuation of the company for all of these developments plus new lithium price assumptions (below).
Year end |
Total revenues |
PBT |
Cash from |
Net cash/(debt)* |
Capex |
06/21 |
4.1 |
(0.3) |
1.0 |
14.7 |
(0.6) |
06/22 |
0.0 |
(7.9) |
(5.5) |
1.0 |
(8.6) |
06/23e |
0.0 |
(3.6) |
(2.7) |
(121.8) |
(176.8) |
06/24e |
0.0 |
(14.7) |
(14.3) |
(335.8) |
(199.7) |
Note: *Includes lease liabilities; historical numbers include Desert Lion Energy convertible.
Lithium prices also up
At the same time as Lepidico has been updating its project economics, we have revised our short- and long-term lithium prices higher. A full explanation of the methodologies and philosophies behind our price revisions is included in our report, Lithium’s adolescence, published on 1 February. However, in general terms, our near-term prices have increased by up to 124%, while our longer-term prices have increased by approximately 31%.
Exploration success
Since its May 2020 definitive feasibility study (DFS), Lepidico has upgraded c 1.6Mt (or three years’ worth of processing capacity) from waste to ore reserves as well as upgrading substantially all of its resource at Helikon 4 (c a further three years’ worth of processing capacity) from the inferred category into the indicated category (62.6% of which it subsequently converted into the probable category of reserves). Finally, it has also confirmed the availability of a further c one year’s worth of relatively high-grade material on surface at Karibib (with 100% conversion of indicated resources into reserves) for processing once the project has commenced.
Exploration success begets financial success
Lepidico’s updated and improved economics announcement of 22 November calculated a project NPV8 for the integrated Karibib mining and chemical plant operation of US$530m, or A$749m (9.8 Australian cents per share) on a pre-funding basis. By contrast, at our updated lithium prices, we value the project at US$641.4m (8.4 US cents per share, undiluted), or A$906.6m.
Valuation: Aiming for 5–7x the current share price
On the basis of our new lithium prices, as well as Lepidico’s updated capex and opex estimates, we have revised our valuation of the company to 8.61 Australian cents per share (7.59c/share with equity dilution performed at the current share price of 1.5c) plus a potential, risk adjusted 0.65–1.59c/share (fully diluted) for a conceptual 20,000tpa lithium carbonate equivalent (LCE) Phase 2 Plant, to take our total aggregate conceptual valuation of the company to 9.26–10.20 cents per share (cf 6.71–7.66 cents per share previously).
Everything moving all at once
Since our last note on the company (see Quantifying exploration’s dividends, published on 6 October 2022), Lepidico has:
■
successfully completed extensive pilot plant trials at larger scale, with excellent results that confirm the Phase 1 L-Max and LOH-Max designs. The trials, conducted by Strategic Metallurgy (a major shareholder in Lepidico), confirm Phase 1 design parameters and that battery-grade lithium hydroxide (and by-products) can be recovered using LOH-Max, in particular. At the same time, test work carried out on third-party crystallisers demonstrated that the lithium hydroxide crystals produced ‘are much more pure than that produced from the sodium sulphate route’, while by-product pilot trials resulted in ‘excellent separation of potassium sulphate from impurities’ and ‘high recovery of caesium’. Since then, the independent engineer’s review of final pilot trial reports has been underway (note that completion of this technical piece of due diligence is a key gating item for securing Phase 1 Project debt);
■
raised more than A$19m via a one-for-10 entitlements issue at 1.8c per share (including a top-up to satisfy strong demand) plus a number of other, incremental equity issues to cover the exercise of options etc;
■
as a consequence of competing Front End Engineering & Design (FEED) for both plants (which represents a significant further de-risking of the project), on 22 November, updated and improved the economics of its Phase 1 Plant project. Whereas Lepidico’s original feasibility study, in May 2020, calculated an NPV8 of US$221m and an IRR of 31% for the project after pre-production capex of US$139m, C1 cash costs of US$1,656/t and all-in sustaining costs (AISC) of US$3,221/t, its updated economics calculate an NPV8 of US$530m and an IRR of 42% after pre-production capex of US$266m, C1 cash costs of US$7,100/t and AISC of US$11,500/t at a long-term lithium price of US$22,840/t (cf US$12,910/t previously);
■
upgraded mineral reserves at the time of its updated and improved Phase 1 economics in November and updated mineral resources for Helikon 4 and Rubicon and Helikon surface material in January 2023; and
■
on 13 February, reported a maiden ore reserve at Helikon 4 and surface stockpiles, adding 1.16Mt to existing reserves at a 56% higher grade than the combined Rubicon and Helikon 1 estimate, sufficient to extend the operating life of the project to over 17 years. Further upgrades – with the intention of extending the operating life of the project to over 20 years – are expected throughout CY23 as more work of a similar nature is undertaken at Helikon 2, 3 and 4 and potential new targets are investigated in more detail.
This note updates our valuation for all of these developments. In addition, we have revised our short- and long-term lithium prices higher.
Lithium price revisions
A full explanation of the methodologies and philosophies behind the changes in our lithium price forecasts is included in our report, Lithium’s adolescence, published on 1 February. The report includes a review of both long-run and short-term lithium prices. For long-run prices, we have surveyed available public data on new greenfield and brownfield projects to check timing, capital intensity and potential operating costs and also considered the supply challenge through to the end of the 2020s. Our short-run forecast is constructed on both an unrisked and risked basis, the latter allowing for a range of delays that could affect advertised project ramp-up schedules. The next 12–24 months are particularly uncertain given questions over the timing of supply additions, but the longer-term need for additional greenfield and brownfield expansion capacity is clear.
Our key conclusions include:
■
We have raised our long-run prices from US$17,000/t to US$22,500/t LCE to reflect the significant need for additional production capacity in the late 2020s. This is well below spot (c US$70,000/t), but we do not expect prices to move towards long-term pricing until post 2030 and also question if traditional long-term pricing methodology works well in high-growth industries. We argue that a significant premium is required to a traditional incentive price because of rapid demand growth (c 20% CAGR in 2022–30, which is unusually high and probably unprecedented for a commodity industry). A multiple of traditional incentive prices is also not unprecedented in highly concentrated industries (iron ore has traded at approximately double incentive prices for large incumbent producers for the past decade and copper trades at 3–4x what were thought of as incentive prices as recently as the mid-2000s).
■
Our demand analysis indicates lithium demand growing at a 20% CAGR through to 2030, boosting demand to 3Mt by 2030, up 4–5x from current levels. Note that this compares with Albemarle, which recently raised its forecasts for lithium demand by c 15%, suggesting that the world will consume c 1.8Mt LCE in 2025 and 3.7Mt in 2030.
As a result, we have raised our short-term price forecasts to reflect recent price moves, and acknowledge near-term uncertainty. We project a potential supply/demand surplus on an unrisked basis in 2023, but a more balanced market once potential risks are incorporated (including technical risks, commissioning risks and other general delays). Short-term price momentum may dominate sentiment, but the longer-term need for additional capital spending is the core theme underlying lithium for the 2020s.
Lithium prices: Short-term volatility, long-term strength
Lithium prices have been volatile over the past year, spiking to a peak of just over US$80,000/t (LCE spot basis) and averaging US$62,000/t in 2022. At the time of writing, spot prices for carbonate had eased slightly to approximately US$70,000/t. This compares to the average carbonate spot price in China of only c US$6,200/t in 2020. Lithium was the best performing commodity in 2022, outperforming all other industrial metals by a wide margin.
Forecasting average prices for 2023 is particularly uncertain given that prices are relatively high and the supply/demand outlook is particularly dependent on the ramp-up in projects. As a result, we have raised our 2023 price forecast from US$24,000/t to US$55,000/t and acknowledge, given the uncertainty in fundamentals in 2023, that this may require further adjustment as the year progresses.
Exhibit 1: Lithium prices, China spot |
Exhibit 2: Lithium prices, South America FOB |
Source: Refinitiv |
Source: Refinitiv |
Exhibit 1: Lithium prices, China spot |
Source: Refinitiv |
Exhibit 2: Lithium prices, South America FOB |
Source: Refinitiv |
Contract prices should generally follow the spot price, but with a certain lag. Based on the current market fundamentals, we conservatively model the average contract hydroxide price at US$55,000/t in 2023–24.
A cyclical forecast should only apply to a period where reasonable visibility of likely project commissioning is possible. We would place this as four to five years at present, around which time either demand destruction or the acceleration of marginal supply could come into play. We acknowledge that the late 2020s are particularly uncertain and, as such, apply long-run pricing only beyond 2031. It is possible that continued demand growth continues to place upward pressure on these equilibrium prices. We do not believe that lithium equities discount an extrapolation of current spot prices.
Exhibit 3: Edison contract lithium price expectations, US$/tonne |
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Source: Edison Investment Research |
We assume a US$1,000/t price difference between carbonate and hydroxide, which is lower than the historical levels (driven by the traditional value chain for industrial applications), but could also be conservative given high carbonate demand in China owing to the growing use of lithium ferro-phosphate (LFP) batteries. At the moment, however, we understand that the spot carbonate price is on par with, if not at a premium to, the hydroxide price.
Updated and improved Phase 1 economics
The mine plan summarised in Lepidico’s 22 November 2022 announcement was largely unchanged relative to its May 2020 DFS. However, in the intervening time, it is notable that approximately 1.6Mt (or three years’ worth of processing capacity) was upgraded from waste to ore reserves. While at a slightly lower overall grade (0.40% Li2O cf 0.46% Li2O), this upgrade also had the effect of reducing the waste:ore ratio of the overall project by a material 23.6%, from 3.77 to 2.88.
Subsequently, on 30 January 2023, Lepidico announced that it had upgraded substantially all of its resource at Helikon 4 (approximately a further three years’ worth of processing capacity) from the inferred category of resources into the indicated category at a higher grade (0.47% Li2O cf 0.38% Li2O). It also confirmed the availability of a further c one year’s worth of relatively high-grade material on surface at Rubicon (0.86% Li2O) and Helikon (0.64% Li2O) for processing once the project has commenced. A fortnight later, on 13 February, Lepidico announced that it had upgraded 62.6% of the upgraded resource tonnage at Helikon 4 that was in the indicated category (approximately 1.5yrs of processing capacity) into the probable category of reserves at an elevated grade of 0.51% Li2O (cf a 0.46% resource grade). It also announced that it had upgraded 100% of the upgraded resource tonnage of surface material at Rubicon that was in the indicated category (approximately 0.5yrs of processing capacity) similarly into the probable category of reserves at a grade of 0.89% Li2O (cf a prior project reserve grade of 0.40% Li2O).
In our last note on Lepidico, we posited an additional six years of life to Lepidico’s Phase 1 Plant project life (from 14 to 20 years) in anticipation of exploration results supporting additional resources and, ultimately, reserves, at Karibib. In the light of the upgrades demonstrated by Lepidico to both reserves and resources at Karibib to date, we have opted to retain the six additional years of production in our production model relative to that set out in its updated DFS. To this end, the Helikon 2-4 line of mineralisation will now be drill tested for both continuity along strike between the deposits and down dip to the south, with the objective of extending the Phase 1 operating life to well over 20 years. As well as targeting down-dip extensions to the mineralisation, the 2023 resource development drilling programme (that is scheduled to start imminently) will provide geotechnical data with the objective of both expanding the project’s indicated resources and increasing their conversion into probable reserves. The programme will also include infill and extensional drilling at Helikon 2-3, which together host an inferred mineral resource of 0.51Mt grading 0.52% Li2O. In addition, a new occurrence of lepidolite bearing pegmatites was identified in Q4 CY22 within EPL5439, with intermittent outcrop and historical workings extending over a 1.5km strike and site access is being arranged to drill this priority new target.
Apart from the lithium price, the principal changes set out in Lepidico’s updated and improved Phase 1 Plant project economics relate to its capital and operating cost estimates, which are summarised in Exhibits 4 and 5, below:
Exhibit 4: Phase 1 project capital cost estimate evolution |
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Source: Lepidico, Edison Investment Research |
In general, while we had already inflated both our capex and opex estimates since the time of Lepidico’s original DFS in May 2020 by 62% and 15%, respectively, we were still approximately 15% too low in our capex estimates relative to Lepidico’s updated economics announcement of November 2022 and approximately 20% too low in our opex estimates (see below). While capital cost inflation is a reality in the mining industry in general at the current time, the materially improved project economics reported by Lepidico for the Phase 1 Plant project are a consequence of being in the right commodity (ie lithium) at the right point in its cycle. Moreover, the project is, to all intents and purposes, one of the first lithium projects to recalibrate its costs to current market conditions, in contrast to work conducted before 2022, which tended to recognise and capture disinflation, rather than inflation, within the industry.
Exhibit 5: Phase 1 operating cost estimate evolution |
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Source: Lepidico, Edison Investment Research |
Assumptions
In the light of these developments, we have updated our valuation of Lepidico to reflect both our updated lithium price forecasts, as well as the project’s updated capex and opex assumptions. For lithium hydroxide, a simple comparison of our revised price forecasts as they relate to Lepidico is as follows:
Exhibit 6: Edison revised lithium hydroxide monohydrate price forecasts (US$/t) |
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Source: Edison Investment Research |
As stated previously, we have retained an additional six years of life in the project to reflect recent exploration success. In addition to the changes in operational and financial assumptions detailed above, we have made the following adjustments to our financial model:
■
We have updated our forex rate to A$1.4134/US$ (cf A$1.5494/US$ previously).
■
We have maintained the size of Lepidico’s presumed equity financing in FY23 at US$41.8m (gross). Not least as a result of our updated forex assumptions (above), this has reduced the amount to be raised in Australian dollar terms from A$60.8m to A$56.7m (net), of which c A$20.8m (gross) has already been raised principally in the form of the company’s entitlements offer earlier this year (see above). Given that any further Phase 1 development equity will be raised after debt finance is arranged, which might reasonably be expected to lead to a re-rating of the company’s shares, we are continuing to assume that this will take place at an unchanged share price of A$0.028/share. Note that a sensitivity analysis of Lepidico’s valuation to changes in the assumed price of equity funding is provided in the Sensitivities section of this note on page 8 below.
Valuation
Project valuation
Lepidico’s updated and improved economics announcement of 22 November calculated a project NPV8 for the integrated Karibib mining and chemical plant operation of US$530m, or A$749m (9.8 Australian cents per share) on a pre-funding basis at the current foreign exchange rate of A$1.4134/US$. By contrast, including six additional years of production, but also a 20% minority interest in the Karibib mining operation, we value the project at US$641.4m (8.4 US cents per share), or A$906.6m – 21.0% in excess of Lepidico’s updated estimate. A bridge chart of the evolution of the project’s valuation by component part since our equivalent valuation at the time of our last note (in October 2022) is as follows:
Exhibit 7: Karibib project valuation bridge, October 2022 to February 2023 (US$m) |
Source: Edison Investment Research. Note: Includes 20% minority interest in Namibian mining and concentration operation. |
Company valuation
Our valuation of Lepidico’s equity varies from our value of the integrated Karibib mining and chemical plant project, among other things, on account of the following:
■
Our valuation of the project is conducted on the basis of discounted cash flows (DCF) at a discount rate of 8% (to be consistent with Lepidico’s original DFS and subsequent update), whereas our valuation of the company is based on the present value of future dividends potentially payable to shareholders in Australian dollars – necessarily post-funding – using a discount rate of 10%.
■
Our valuation of the company automatically takes into account anticipated changes in working capital requirements (based on assumed creditor, debtor and stock days), which are also excluded from our DCF valuation model.
■
Our equity valuation of the company is necessarily stated after debt interest payments, which is not the case for our DCF valuation of the project, where the cost of debt is implicitly embedded in the discount rate applied to cash flows.
■
Our company valuation assumes ongoing corporate costs in the order of A$3.1m per year.
As a consequence, changes in the project valuation are typically dampened when compared to the company valuation.
In our last note on the company, we calculated a value for Lepidico’s shares of 5.67 Australian cents per share plus 0.38c for the value of an envisaged loan to the minority shareholders in the upstream Namibian operation to give a total valuation for the company of 6.05c/share. In the wake of the changes discussed above, our discounted valuation of Lepidico’s future (maximum potential) dividend stream to shareholders has increased to 8.34c/share, rising to a peak of 12.20c/share (cf 9.26c/share previously) on the cusp of the company’s (assumed) first material dividend in FY27, as shown in the chart below:
Exhibit 8: Edison estimate of future Lepidico EPS and (maximum potential) DPS |
Source: Edison Investment Research |
To this valuation of 8.34c/share should then be added the value of Lepidico’s envisaged future loan to the minority shareholders in the Namibian mining and concentrating operation, which we now estimate at 0.28c/share (fully diluted), to result in a total value for Lepidico’s shares of 8.61c/share (cf 6.05c/share previously), based solely on its Phase 1 project. A bridge chart, showing the major components in the evolution of the valuation from 6.05c/share to 8.61/share is provided in Exhibit 9, below.
Exhibit 9: Lepidico valuation bridge, October 2022 to February 2023 |
Source: Edison Investment Research |
To this valuation of 8.61c/share may then be added a potential risk-adjusted 0.65–1.59c/share (fully diluted) for a conceptual 20,000tpa LCE Phase 2 Plant (see our note, Phase 2 coming into view, published on 18 June 2021), to take our total aggregate conceptual valuation of Lepidico to 9.26–10.20 cents per share (cf 6.71–7.66 cents per share previously).
Sensitivities
In the wake of its updated economics, the two principal quantitative risks to which our valuation of Lepidico is exposed are: 1) the long-term price of lithium hydroxide and 2) the price at which it raises future equity. The effects of the lithium hydroxide price sticking at a higher level, earlier than the long-term one currently assumed (US$23,500/t – see Exhibit 6) are as follows:
Exhibit 10: Lepidico valuation sensitivity to the long-term price of lithium hydroxide (US$/t) |
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Source: Edison Investment Research |
At the same time, our financial model assumes that Lepidico will raise a further A$37.0m (net) in FY23 at an unchanged share price of 2.8c (cf Lepidico’s prevailing share price of 1.5c at the time of writing). Exhibit 11 demonstrates the sensitivity of our valuation to variations in this equity price:
Exhibit 11: Lepidico valuation sensitivity to future equity funding price (Australian cents per share) |
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Source: Edison Investment Research |
Readers should note that it is also possible that Lepidico may choose to source all (or a portion) of this future equity funding requirement from a strategic partner after debt funding has already been secured, in which case it is possible/likely that a higher equity price could be supported.
Exhibit 12: Financial summary
Accounts: IFRS, year-end: June, A$000s |
|
|
2018 |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
PROFIT & LOSS |
|||||||||
Total revenues |
|
|
171 |
2 |
47 |
4,137 |
10 |
0 |
0 |
Cost of sales |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Gross profit |
|
|
171 |
2 |
47 |
4,137 |
10 |
0 |
0 |
SG&A (expenses) |
|
|
(5,284) |
(4,006) |
(4,904) |
(3,398) |
(4,796) |
(3,146) |
(3,146) |
Other income/(expense) |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Exceptionals and adjustments |
|
(2,171) |
(1,150) |
(2,740) |
(338) |
(2,275) |
0 |
0 |
|
Depreciation and amortisation |
|
(6) |
(8) |
(1,208) |
(713) |
(411) |
(411) |
(411) |
|
Reported EBIT |
|
(7,290) |
(5,162) |
(8,805) |
(311) |
(7,472) |
(3,558) |
(3,558) |
|
Finance income/(expense) |
|
70 |
57 |
17 |
0 |
(392) |
5 |
(11,137) |
|
Other income/(expense) |
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|
Exceptionals and adjustments |
|
0 |
0 |
(2,026) |
0 |
0 |
0 |
0 |
|
Reported PBT |
|
|
(7,220) |
(5,105) |
(10,814) |
(311) |
(7,863) |
(3,552) |
(14,694) |
Income tax expense (includes exceptionals) |
|
|
0 |
0 |
696 |
593 |
(78) |
0 |
0 |
Reported net income |
|
|
(7,220) |
(5,105) |
(10,118) |
283 |
(7,941) |
(3,552) |
(14,694) |
Basic average number of shares, m |
|
|
2,624 |
3,272 |
4,568 |
5,218 |
6,247 |
7,775 |
9,044 |
Basic EPS (c) |
|
|
(0.0) |
(0.0) |
(0.0) |
0.0 |
(0.0) |
(0.0) |
(0.0) |
BALANCE SHEET |
|
|
|||||||
Property, plant and equipment |
|
|
27 |
20 |
1,904 |
1,669 |
8,591 |
185,020 |
384,298 |
Intangible assets |
|
|
19,027 |
22,925 |
23,870 |
24,631 |
29,065 |
29,065 |
29,065 |
Other non-current assets |
|
|
730 |
27,469 |
42,798 |
44,058 |
47,396 |
47,396 |
47,396 |
Total non-current assets |
|
|
19,783 |
50,414 |
68,573 |
70,358 |
85,052 |
261,482 |
460,760 |
Cash and equivalents |
|
|
4,860 |
13,660 |
4,793 |
14,738 |
8,043 |
8,043 |
8,043 |
Trade and other receivables |
|
|
712 |
1,869 |
1,767 |
244 |
2,204 |
0 |
0 |
Total current assets |
|
|
5,572 |
15,529 |
6,560 |
14,982 |
10,247 |
8,043 |
8,043 |
Non-current loans and borrowings |
|
|
0 |
3,276 |
5,215 |
0 |
6,744 |
129,588 |
343,560 |
Other non-current liabilities |
|
|
0 |
0 |
10,055 |
9,283 |
9,669 |
9,669 |
9,669 |
Total non-current liabilities |
|
|
0 |
3,276 |
15,271 |
9,283 |
16,413 |
139,257 |
353,229 |
Trade and other payables |
|
|
804 |
10,940 |
565 |
968 |
1,986 |
259 |
259 |
Current loans and borrowings |
|
|
0 |
0 |
0 |
0 |
280 |
280 |
280 |
Other current liabilities |
|
|
51 |
86 |
108 |
140 |
179 |
179 |
179 |
Total current liabilities |
|
|
856 |
11,026 |
672 |
1,108 |
2,445 |
717 |
717 |
Equity attributable to company |
|
|
24,500 |
53,252 |
52,404 |
68,314 |
70,037 |
123,147 |
108,452 |
Non-controlling interest |
|
|
0 |
(1,610) |
6,785 |
6,636 |
6,404 |
6,404 |
6,404 |
CASH FLOW STATEMENT |
|
|
|||||||
Profit for the year |
|
|
(7,220) |
(5,105) |
(10,118) |
283 |
(7,941) |
(3,552) |
(14,694) |
Taxation expenses |
|
|
0 |
0 |
(696) |
(593) |
78 |
0 |
0 |
Depreciation and amortisation |
|
|
6 |
8 |
1,208 |
713 |
411 |
411 |
411 |
Share based payments |
|
|
2,138 |
520 |
1,027 |
338 |
1,823 |
0 |
0 |
Other adjustments |
|
|
2,066 |
664 |
4,716 |
(497) |
837 |
0 |
0 |
Movements in working capital |
|
|
(28) |
410 |
(1,509) |
201 |
(689) |
477 |
0 |
Interest paid/received |
|
|
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Income taxes paid |
|
|
0 |
0 |
696 |
593 |
0 |
0 |
0 |
Cash from operations (CFO) |
|
|
(3,038) |
(3,504) |
(4,676) |
1,037 |
(5,483) |
(2,665) |
(14,283) |
Capex |
|
|
(3,057) |
(6,251) |
(7,452) |
(550) |
(8,631) |
(176,841) |
(199,689) |
Acquisitions & disposals net |
|
|
110 |
0 |
416 |
0 |
0 |
0 |
0 |
Cash used in investing activities (CFIA) |
|
|
(2,947) |
(6,251) |
(7,036) |
(550) |
(8,631) |
(176,841) |
(199,689) |
Net proceeds from issue of shares |
|
|
7,555 |
18,462 |
3,523 |
14,707 |
7,432 |
56,662 |
0 |
Movements in debt |
|
|
0 |
0 |
0 |
(5,176) |
0 |
122,844 |
213,972 |
Cash from financing activities (CFF) |
|
|
7,555 |
18,462 |
3,523 |
9,531 |
7,432 |
179,505 |
213,972 |
Increase/(decrease) in cash and equivalents |
|
|
1,570 |
8,707 |
(8,190) |
10,017 |
(6,681) |
0 |
0 |
Currency translation differences and other |
|
|
(17) |
93 |
(678) |
(72) |
(14) |
0 |
0 |
Cash and equivalents at end of period |
|
|
4,860 |
13,660 |
4,793 |
14,738 |
8,043 |
8,043 |
8,043 |
Net (debt)/cash |
|
|
4,860 |
10,385 |
(422) |
14,738 |
1,019 |
(121,825) |
(335,797) |
Movement in net (debt)/cash over period |
|
|
1,553 |
5,525 |
(10,807) |
15,160 |
(13,719) |
(122,844) |
(213,972) |
Source: Company sources, Edison Investment Research.
|
|
Research: TMT
Dentsu reported record full-year headline results in FY22, which were bolstered by a final quarter in which the company delivered organic net revenue growth of 3.5%. Good progress continues to be made in Customer Transformation and Technology (CT&T), which grew 17.5% y-o-y and constituted 32% of revenues in the year. Management forecasts 4% organic revenue growth for FY23, reflecting the tougher macroeconomic environment. Guidance on the underlying operating margin in FY23 is for a retrenchment to 17.5% as investment is made to drive CT&T and support the One dentsu initiative. This is set to rebound to 18.0% in FY24 as the benefits start to flow through. Year-end net cash of ¥71.3bn and an appetite for leverage of 1.0–1.5x provides ample resource for both capex and M&A. Our FY23 estimates are under review.
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