Heading into a new year, here are four stocks I’d happily own in 2024.
1. Karoon Energy (KAR, $1.88)
Market capitalisation: $1.4 billion
12-month total return: –14.1%
Three-year total return: 22.8% a year
Analysts’ consensus price target: $2.68 (Stock Doctor/Refinitiv, ten analysts)
Sorry, Mr. Bowen, but I’m happy to buy this fossil fuels producer – Karoon Energy has conventional oil and gas-producing assets in the Santos Basin, off the coast of Brazil, and last month, it made an excellent purchase, buying an interest in the Who Dat and Dome Patrol oil and gas fields, in the Gulf of Mexico, off the Louisiana coast.
The Who Dat field has been producing for 12 years, and it an estimate reserve of between 200 million and 300 million barrels of oil equivalent (boe). At present, Who Dat produces about 42,000 boe a day (about 60% oil), with Karoon’s share of that about 12,600 boe a day. Who Dat nicely fills a production gap for Karoon after its existing Baúna field – which Karoon owns and operates – peaks in 2024, and before its Neon field, which it is assessing, comes onstream, which would be around 2028 if all goes to plan (a Final Investment Decision on Neon is expected in late 2025.)
In FY23, Karoon lifted production by 52%, to 7.04 million barrels (MMbbl), and sales revenue reached a record level of US$566.5 million, up 47%. That flowed through to a 70% rise in underlying net profit, to US$145.9 million. Unit production costs fell, from US$25.36 a barrel to US$15.75 a barrel, which compares nicely to the company’s average realised price for FY23, at US$80.20 a barrel (which was slightly lower than in FY22, due to weaker oil demand in early 2023, reflecting slowing global economic growth.)
The Gulf of Mexico assets are expected to add approximately 4 million–4.5 million boe to Karoon’s calendar-year 2024 production, taking the company’s total projected 2024 production to 12 million–14.5 million boe – so, about a one-third boost. Post-acquisition, Karoon will have a diversified production base in two prolific hydrocarbon basins, and strong near-term organic growth potential to offset the natural decline from Baúna – and there is plenty of development and exploration upside. The share market has coughed a bit at the $480 million entitlement-offer capital raising (at $2.05 a share) to help pay for it, but it’s a really good deal for Karoon, which stands out on the ASX as the sole mid-cap pure conventional oil producer, offering good leverage to the oil market.
2. Clinuvel Pharmaceuticals (CUV, $16.22)
Market capitalisation: $813 million
12-month total return: –23%
Three-year total return: –10.5% a year
Analysts’ consensus price target: $24.00 (Stock Doctor/Refinitiv, five analysts)
Clinuvel Pharmaceuticals (CUV) is a specialist in photo-protective biopharmaceuticals, which has brought to the global market its lead product, SCENESSE, which is the only approved treatment for photo-toxic reactions specifically associated with erythropoietic protoporphyria (EPP), a rare genetic disease in which the skin is severely intolerant to light.
The US Food & Drug Administration (FDA) approved SCENESSE for treating this disease in October 2019, and it has subsequently been approved in most major jurisdictions; SCENESSE has become the first-ever approved standard of care for EPP.
But Clinuvel is looking to expand its use in further indications with a number of clinical trials underway. The expanded clinical program is assessing SCENESSE in DNA Repair, vitiligo, variegate porphyria, and arterial ischaemic stroke. In March, Clinuvel started its second stroke trial (CUV803) with the first patient receiving PRÉNUMBRA (a new formulation of afamelanotide, the same drug as in SCENESSE), in a Phase 2 study evaluating the safety and efficacy of afamelanotide therapy in arterial ischaemic stroke (AIS) patients who are ineligible for the standard of care, which consists of either intravenous thrombolysis (IVT) or endovascular thrombectomy (EVT).
Clinuvel says afamelanotide is suggested to increase blood flow and nutrients to the affected areas, as it is active on blood vessels and reduces fluid formation: it thereby protects tissue and restores the blood brain barrier. The PRÉNUMBRA instant formulation allows doctors to make faster dosing decisions, taking into account each individual patient’s clinical need. The new afamelanotide formulation is expected to provide a faster clinical response: in stroke, the speed of intervention is associated with an improved chance of recovery.
Also, Clinuvel has started to translate its technology to non-pharmaceutical uses. The first PhotoCosmetic product, CYACÊLLE, was launched in March in Europe, in a pilot program, to targeted audiences that need poly-chromatic protection from ultraviolet (UV) and high-energy visible (HEV) light. The overall plan is to launch a number of products in the PhotoCosmetic range, with the innovative melanocortin-based products to help DNA repair from sun and MSH (melanocyte-stimulating hormone) response for risk-free sun-tanning.
Clinuvel has an impressive financial track record for an Australian biotech: FY23 marked the seventh consecutive year of positive revenue growth, net cash inflow and profitability, and a sixth consecutive full-year dividend (CUV paid 7 cents a share, fully franked). At end of FY23, the balance sheet held the highest cash reserves that Clinuvel has ever had at $156.8 million.
As the company adds a specialised melanocortin-based photo-cosmetics business in a consumer market, on top of its core pharmaceutical business, the future looks very interesting for Clinuvel.
3. Iluka Resources (ILU, $6.72)
Market capitalisation: $2.9 billion
12-month total return: –32%
Three-year total return: 7.7% a year
Analysts’ consensus price target: $7.68 (Stock Doctor/Refinitiv, nine analysts)
Iluka Resources has always been known as Australia’s biggest mineral sands producer, but in the last couple of years it has unveiled a fascinating expansion into the burgeoning rare earths business. It had always known that rare earths were contained in the mineral sands monazite and xenotime, which it previously mined at its mothballed Eneabba mine in Western Australia, and that it could produce them from stockpiles at Eneabba. The Eneabba stockpile contains monazite and xenotime, produced as by-products from Iluka’s Narngulu mineral processing plant and stored since the early 1990s. Simple reclamation allowed the company, in the September 2020 quarter, to begin shipping a rare earths concentrate containing neodymium, praseodymium, dysprosium, terbium, cerium and lanthanum to world markets.
Iluka says Eneabba is the world’s highest-grade rare earths operation. The stockpile does not require any mining infrastructure, meaning it can be brought to market quickly. The company hit the green light on the $1.2 billion rare earths refinery project at Eneabba in April 2022, with construction to start in the second half of the year, underpinned by a low-cost $1.05 billion loan from the commonwealth government, under its Critical Minerals Facility. First production of rare earth oxides (REO) containing neodymium, praseodymium, dysprosium, terbium and more, is anticipated in 2025.
And in August, Iluka announced a $15 million study to be completed by 2025 which could see Iluka extend its refining plans to become Australia’s first producer of rare earths metal and be among the first companies outside China to do so.
Iluka has also made the decision to proceed with mining its Balranald underground mineral sands deposit in New South Wales.
In August, Iluka disappointed the market with its half-year result. Revenue from its mineral sands operations in Western Australia and South Australia fell 10%, to $712 million in the first half; EBITDA (earnings before interest, tax, depreciation and amortisation) dropped 22%, to $353 million; unit costs on goods sold rose 26%; operating cash flow sank 53%, to $228 million; and net profit slid 45%, to $204 million. The company slashed its half-year fully franked dividend by 88%, to 3 cents, a year after paying 25 cents.
But in the longer-term, given the move to net zero, its rare earths business is likely to do very well, as the world looks for ready-made sources of the critical metals other than China. And the lucrative core business of mineral sands isn’t going anywhere in a hurry, either. The analysts’ prevailing general positivity on Iluka could turn out to have been understated.
4. Superloop (SLC, 65 cents)
Market capitalisation: $309 million
12-month total return: –9.1%
Three-year total return: –14% a year
Analysts’ consensus price target: 95.9 cents (Stock Doctor/Refinitiv, five analysts)
“Challenger” internet service provider Superloop operates three businesses: consumer connectivity, business connectivity and wholesale connectivity. All leverage Superloop’s investments in physical infrastructure assets – what it calls its “infrastructure-on-demand” platform – which include fibre, subsea cables and fixed wireless, as well as Superloop’s software platforms.
Superloop’s purpose is to enable “challenger” retail brands (including its own Superloop and Exetel brands) to take a larger share of the market, and by doing so, provide better internet connection for Australian homes and businesses.
Superloop had a transformational year in 2021, firstly buying Exetel, Australia’s largest independent internet service provider, and shortly afterward selling $140 million worth of Hong Kong and Singapore assets.
The Exetel acquisition enabled the company to double revenue, triple customer numbers, boost growth in the business and consumer segments, but more importantly, put it in a position to monetise its high-speed internet network, growing its scale, service capability and product set.
In the year ended 30 June 2023, Superloop grew its revenue by 29.5%, to $323.5 million, and lifted underlying EBITDA by 82.2%, to $37.4 million, but the company also posted a loss of $43 million, an improvement from a loss of $52.6 million in FY22. The number of connections surged 52.8%, to 368,300, with increases from wholesale, business and consumer.
The company is very well-balanced: the consumer segment is 53% of revenue, 38% of gross profit; business is 31% of revenue, 31% of gross profit; and wholesale is 15% of revenue, 31% of gross profit. And there is strong customer growth across all three segments.
Superloop has almost tripled its revenue between FY21 and FY23, and the company has set the target of doubling revenue – and its EBITDA margin – by FY26. Superloop has given guidance for FY24 underlying EBITDA of $49 million–$53 million, which would represent a rise of 31%–42%. The company is known for beating its own guidance, so this estimate may turn out to be conservative. The company’s fundamentals are improving quite smoothly, but the caveat is that Superloop is reinvesting in its business, and net profit remains some time away – although the company did achieve positive adjusted net profit (adjusted for non-cash amortisation of intangible assets that came with acquisitions), and positive free cash flow, in the second half of FY23. But despite not formally striking bottom-line profitability, Superloop is an impressive business, nonetheless.
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