ASX Shares 10 bagger

Thanks

Hard to not do well these few months - normally a sign of something not right in the market haha. Had my tradie tell me he doubled his money on PointsBet, sold out and is now looking to re-enter. Like a professional trader

 

I'm up 4x on PBH since buying August 2019. I took a punt on a small buy based on your posts back then... so thanks for that.

 

Key your eye on ADN. Options conversion period up to 30 November could create selling to cap the price, however another piece of strong news could push support above 7c.

Their DFS should deliver significant upside compared to their PFS.

https://www.asx.com.au/asxpdf/20200911/pdf/44mjx2n1jr7246.pdf
https://www.asx.com.au/asxpdf/20200911/pdf/44mjtgqftk6wvt.pdf

It's screaming 10+ bagger over a 2-3 year period.

Timeframe for production likely to be 12-18 months. Very low capex and very high margins combined with short payback.

Guidance is early 2022 for production but they could reign that in.

Pricing indication is somewhere in the AUD $1,000 to $5,000 per tonne band. They also indicate 80% gross margin.

So my modelling on a range of scenarios from 55% gross margin to 80% gross margin at $1200 per tonne ( my assumption of average price they will achieve across product range ).



I'm super-bullish on price sentiment based on P/E of peers I have looked at. I think P/E will sit in 20.0 to 35.0 band.




Note they have mid-term opportunities that will add to upside. Particularly Mt Hope and additional Halloysite opportunities at their lead project.

 

Good shout on ADN. It’s been flying since you posted on Friday. Had a couple of buy orders in and missed out! Think I may have missed the boat now!

 

TPD got good potential. Deal struck with Strike Energy and funding now secured to drill test well in the next 6 months plus some North Sea interest as well so not a 1 trick pony.

 

Lol. You haven't missed the boat if you consider the potential scale of the business they will build in a paddock in South Australia.

This was a slip-up in the webinar Friday.



Video is here:




Without going into detail here, so summarising:

1. For a conservative view of value, multiple PFS figures by 3x to 4x
2. Work out per-share value of post-tax NPV (which is already based on cashflows discounted 8%)
3. Apply a 40% risk margin
4. If you look at peers in the industrial minerals space, P/E is strong - hence basis for potential range in production at different multiples of PFS

They will probably release their Definitive Study in December or January.

Numbers below are highly speculative and not intended to be specific advice.

 

Thanks for sharing. I got in with a relatively small buy today.

 

I would be interested in @wombat777 opinion here since your good at valuing companies! Lol TPD is quiet on the threads and obviously much lower in SP than it has been but at 0.003c you can rack up a few shares with a small position if they are headed in the right direction.

 

They are certainly starting to get a fair bit of attention, recently they have gone from basically being illiquid to upto 100 million in shares trading per day.

 

@wombat777 can you help me value this one??

TLG
Capacity to produce 19,000tpa of high grade natural graphite flake from 2023, mine life of 22yrs - pre tax revenue $188m/pa with expressions of interest to increase that by 300%
Mine life profit $3,133m with current NPV $1,056m

Only operation in Europe at this stage with euro drawing from China currently, market expected to grow to a need of 500,000tpa

Well funded with experienced board.

How would you come up with a price target for this?

 

Simple approach is to work out per share value of post-tax NPV figure.

A few things:

1. Get fully-diluted share structure from latest Appendix 2A ( tally all the shares, options and unlisted securities to come up with a total )
   
2. Apply a dilution factor to the tally of the share structure to get the project funded
3. Apply a risk margin

Here’s an old example for ADN:



In this example the particular study didn’t give post-tax NPV so I had to work out a rule of thumb ratio to convert from a pre-tax NPV figure to a post-tax NPV figure ( I did this by looking at other studies and found 65% is a good conversion factor ).

Also the TLG study gives NPV figures in USD so you need to convert to AUD.

You need to think about how many shares they are likely to need to issue to fund the project. Typically only 70% of funds comes from debt so 30% needs to come from issue of more shares ( dilution ). They also need additional working capital.

For TLG with USD $27M startup capex they will likely need about USD $8.1 based on 30% equity ( new shares issued ). CAPEX is in USD so in AUD that USD $8.1 becomes about AUD $12M equity.

They are a bit naughty since from a quick look the PFS does not give an estimate of working capital required. Although ASX may have only got strict on this in last 12 months.

As a rule of thumb for an expensive project like this I would look at applying a 25% dilution factor to fully-diluted shares ( i.e. 1.25 x total securities in the 2A ).

I hope that helps.

(later edited as I found they are using a 2-stage approach)

 

The other thing to do for TLG is to work out in-production valuations so you can get a feel for overall upside ... are you likely to have a 5-bagger or a 10-bagger or a dilution trap.

You need to do this for 2 stages ( Stage 1 at 5,000 tonnes pa and Stage 2 at 19,000 tonnes pa )

The calculation structure looks something like this:

• You would need to do conversions between USD and AUD ( TLG PFS figures are in USD )
• You need to work out tax rate to apply ( always go with 30% as a minimum and then see if tax jurisdiction affects this )
• You may need an interest expense in the calculation
• I start with a rule of thumb 7% for depreciation and amortisation
• You need to work out what P/E range is likely to apply at each stage ( P/E will be driven by the company growth strategy and the sector, so look at peer companies - but what a company plans to do next after getting a first operation going is important for strong P/E )
• You need to estimate what the likely share issue will be in production

On the dilution front:

• Look at ATC dilution since around 2012 to see what an extreme case of dilution is
• Look at AJM to for the last 3 years to see what can happen when debt gets out of control and the impact on dilution

Finally, pluck up the courage to phone management and ask them questions after you have carefully read their study, their announcements. I would ask them what their growth opportunities are beyond the first project as one question.

 

Thanks very much mate, that's amazing. A fair bit of that will take me some time to learn but looks like a very valuable skill to learn. Im sure il have more questions after I try this over the weekend

 

@wombat777 have you ran an eye over ASX:TNG by any chance?

A former colleague who is now involved in the environmental side of things has just dropped a not insignificant sum into this stock. I've never really dabbled in small caps but the upside potential to the Mt Peake project appears impressive, $2.8B NPV (AUD) with a 33% IRR. Unfortunately CAPEX is equally as impressive at $820M, they do however appear to have some major players on their side in SMS Group and now KPMG.

 

Be careful of anything with a huge CAPEX.



You will also likely strike pain if CAPEX to market cap ratio is too large.

Also be careful of payback period. Look for things under 2 years payback for startup capital.

 

That's a scary looking chart. That said, the run from $0.90 in 2009 to the high for $24.00 or so in 2011 would've made a lot people very wealthy!

What was the market cap and share price of Lynas when it was at the same stage as TNG?

 

The only people that generally make money on mega capex projects are generally the people that issue the convertible notes.

 

Lynas have been churning away for over 20 years on Mt Weld.

ATC similar story. About 8 years of mega dilution.

 

That doesn't sound fun. The gangsters in suits (BoD) of most of these small caps seem to do pretty well too! Making a living off the dreams of the retail punters.

Thanks for the interesting valuation posts! Looks like you've learnt a bit from the whole BML experience. I'm still not brave enough for the small cap plays but hats off to you!

 

I think retail get drawn in by shiny presentations and the massive revenue and NPV figures without looking at the CAPEX hurdle to get there. Technical risk is also proportional to CAPEX spend. They greater the $$$ spent the more that can and does go wrong.