RED’s 1HFY24 earnings result was better than we had expected. Ebitda of A$97.6m benefited from a A$15m non-cash inventory variance. This flowed through to underlying earnings, which was 65% higher than our forecast. Cash flow generation was broadly in line with operating and free cash flow coming within 3% of our forecasts. Progress on the proposed merger with Silver Lake Resources (SLR AU, HOLD, A$1.20 price target) presents the key near-term catalyst for RED. We believe the long-life and high production rate of King of the Hills could attract another suitor now that the merger has been announced. We reiterate our BUY rating and A$0.40 price target.
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