PRN Share Price Down Big after Operational Headwinds (ASX:PRN)
At the time of writing, the Perenti Global Ltd [ASX:PRN] share price is down a whopping 28.21%, trading at 70 cents.
PRN shares had more than a quarter of their value shaved off in the space of a day, which you can see below:
Given how big this move was, we take a look at why the PRN share price is down starting with the details from PRN’s operational update, and the prospects of a PRN share price recovery.
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Lowlights from PRN’s operational update
Here they are:
‘• Over $700 million of contract awards announced since 31 December 2020 and expanded the growth pipeline by 20%
‘• Continued strategic expansion into the North American underground market
‘• Successfully completed the transition from Yanfolila and Boungou, having now released circa $87 million of cash from these projects
‘• COVID-19 continues to impact our operations, particularly our international projects
‘• Ongoing tightening of the Australian labour market is impacting business margins
‘• Strengthening Australian dollar negatively impacting foreign operations’ financial performance
‘• Outlook for second half FY21 earnings to be softer than first half FY21 due to combined impact of COVID-19, Australian labour market and stronger Australian dollar
‘• Headwinds associated with COVID-19 and labour market expected to continue for the next 12 to 18 months resulting in a softening outlook for FY22’
So, there’s three decent bullet points there, followed by five negative ones.
Adding it all up, this explains the big movement.
There’s some detail here as well which I believe is the most damaging:
‘As announced on 23 February, we had expected revenue and operating margins in the second half of FY21 to be consistent with results reported in first half of FY21. We have revised our outlook and now expect revenue and operating earnings for the second half of FY21 to be softer when compared to the first half of FY21. We expect the current challenges, COVID-19 and emerging Australian labour market conditions, to continue beyond the end of FY21 and into FY22.’
Let’s dig into this a bit further.
In its last half-yearly figures PRN had put down just less than $427.32 million for the period in labour costs against just over $1 billion in revenue.
That’s almost half of its revenue being eaten up by getting ‘boots on the ground’.
Perenti’s business is labour intensive, so let’s look at their revenue breakdown:
Source: Perenti Global Ltd
That’s more than half their revenue coming from outside Australia (mainly Africa) and two-thirds of its revenue coming from gold operations.
That, in a nutshell, is why today was so painful.
We know Africa is well behind in terms of a vaccine, and gold sold off quite a bit this year.
Logistical challenges securing labour was salt in the wounds.
Here’s what I think the outlook for PRN shares is.
Outlook for the PRN share price
After such a sharp sell-off it’ll be interesting to see where the bottom comes in at.
Remembering that this is a large business with over $1 billion in revenue, you’d think that would put the brakes on the slide at some point despite the downbeat earnings commentary.
Compounding PRN’s problem is that they didn’t even offer a rough figure, simply using the terminology ‘softer’.
Looking at the chart below you can see it’s already breached one support line at around 75 cents:
Maybe 50 cents will stop the slide?
That would mean there’s still a bit of potential wiggle room downwards, and in turn could mean that the outlook for PRN shares is largely negative given how tricky their operational headwinds are.
That being said, if you take a long-term perspective, some bargain hunting could come into the picture at some point.
The sizeable revenue could be salvaged by another gold bull run or a better vaccine rollout in areas outside of Australia in the coming 2–3 years.
That would likely positively impact margins and undo some of the damage experienced today.
If you were into PRN for its exposure to a better gold price, it may surprise you to find out that Australia is due to become a bigger gold producer than China.
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It’s a great read, and best of all, it’s free.
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