First Nickel Production From ENC HPAL Project Will Boost Output In 2025

Key Takeaways

• Anticipated capacity increases from new projects and enhanced processing efficiencies are expected to significantly boost revenue and production levels.
  
• Strong shareholder support through the dividend reinvestment plan reflects confidence in future earnings and a robust financial position.
  
• Regulatory shifts, asset impairments, and fluctuating nickel market conditions challenge Nickel Industries' financial stability, impacting revenue, profitability, and cash flow management.

Catalysts

Engages in nickel ore mining, nickel pig iron, cobalt, and nickel matte production activities.

• The first nickel production from the ENC HPAL project in 2025 is a major catalyst, expected to significantly boost production levels and increase revenue.
  
• The planned increase in ore sales from the Hengjaya Mine from 9 million to 19 million wet metric tonnes per annum is likely to significantly contribute to revenue growth.
  
• The recent acquisition and development of the world-class Sampala Nickel Project will contribute to production capacity and revenue, further ensuring the company’s self-sufficiency in nickel.
  
• Improved processing efficiencies and reduced costs at HNC, with a performance above nameplate capacity, provide a positive outlook for the ENC operations, potentially boosting net margins as production scales up.
  
• The strong commitment from major shareholders to the dividend reinvestment plan signals confidence in the company’s future earnings growth and supports a strong balance sheet, beneficial for sustained earnings development.

Nickel Industries Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nickel Industries's revenue will grow by 18.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.7% today to 14.3% in 3 years time.
• Analysts expect earnings to reach $414.1 million (and earnings per share of $0.1) by about April 2028, up from $-168.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $580 million in earnings, and the most bearish expecting $123.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, up from -8.3x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 12.1x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.77%, as per the Simply Wall St company report.

Nickel Industries Future Earnings Per Share Growth

Risks

• The global nickel market is experiencing multi-year lows, which has impacted Nickel Industries' revenue and profits, leading to a net loss after tax of $189.8 million for 2024. This suggests future revenue volatility and potential financial challenges.
  
• The company's oldest RKEF assets, HNI and RNI, were impaired by $205 million due to not benefiting from integrated power and high ore costs, indicating potential future reductions in asset value and profitability.
  
• Nickel Industries' net debt is $827.5 million, affecting its leverage and potentially increasing interest expenses, impacting net margins and earnings.
  
• The fluctuating prices and demand for nickel products, such as NPI and MHP, challenge the company’s ability to maintain consistent pricing and margins, introducing revenue uncertainty.
  
• Regulatory changes, such as Indonesia's mandate for natural resource companies to retain 100% of FX revenues in the country, could impact working capital management and affect the company's cash flow and liquidity.

Valuation

• The analysts have a consensus price target of A$0.936 for Nickel Industries based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$1.6, and the most bearish reporting a price target of just A$0.55.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.9 billion, earnings will come to $414.1 million, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 8.8%.
• Given the current share price of A$0.5, the analyst price target of A$0.94 is 46.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.