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BHP Billiton Limited

• Cost optimization to offset the commodity volatility: BHP Billiton Limited (ASX: BHP) reported an underlying EBITDA decline by 28% yoy to USD 21.9 billion during the fiscal year of 2015, due to falling average realized prices on the back of commodity prices pressure. Attributable profit fell 52% yoy to USD 6.4 billion while the group’s operating cash flow tumbled 25% yoy to USD 17.8 billion. On the other hand, the group has an EBITDA margin of 50%, placing it among the lowest cost producers in the industry. BHP enhanced the Production from its core portfolio by 27% over the last two years, and achieved a record Western Australia Iron Ore production as well as metallurgical coal production of 254 Mt and 43 Mt respectively during the year. The group’s petroleum production surged 67% yoy to 256 MMboe driven by Onshore US liquids. The group already delivered a productivity gains of US$4.1 billion during the fiscal year 2015, two years ahead of its schedule (FY17). BHP reduced its unit cash costs of Western Australia Iron Ore, Queensland Coal, Escondida and Black Hawk well by 31%, 23%, 8% and 19% respectively. Accordingly, the group was able to decrease US$2.7 billion of cash costs, with US$1.2 billion achieved from productivity-led volume efficiencies.

           
 
          Growth potential (Source: Company Reports)     
 

• Stock Performance: BHP is an attractive investment for Investors hunting for cheap dividend yield value stock, but has risks associated. To offset the commodity prices volatility. BHP is now focusing on its long term growth to attain a portfolio of around $40 billion, despite pricing pressure. Moreover, the management forecasts that its annual average volume growth would return to 5% for the rest of the decade.BHP has a strong dividend yield of 7%. We remain bullish on the stock and give a “BUY” recommendation at the current price of $24.70

 

 
Australia and New Zealand Banking Group

• Addressed investors’ concerns on its Asian Business growth: The shares of Australia and New Zealand Banking Group (ASX: ANZ) were under pressure falling by 17.6% in last four weeks (Aug 7 to Sep. 4), due to investors’ concerns on slowdown in China. However, management has addressed these concerns during its results, and reaffirming the China’s growth outlook over 7% to 7.5% per year. In fact the group’s global markets businessdelivered a 6% yoy increase to $1.8 billion during the nine months ended on June 30 of fiscal year of 2015, while the customers for International and Institutional Banking improved 9% yoy, boosted by Asian business. Cross border payments represented over 25% of the institutional total customer revenues as of first half of 2015.  

       
       Provision charges and impaired assets (Source: Company Reports)
 

• Improved earnings: The bank managed to deliver a decent earnings performance during the nine months ended on June 30 of fiscal year of 2015, with group’s cash profit raising by 4.3% yoy to $5.4 billion, while the Profit before Provisions surging by 5.1% as compared to the corresponding period of earlier year. The statutory profit improved 11% yoy to $5.6 billion in 9M15, against $5 billion in pcp, driven by the improved customer franchises across Australia, New Zealand and Asia Pacific. Customer deposits witnessed solid performance, enhancing by 9.5% on a year over year basis, driven by net loans and advances increase by 7.7% yoy during 9M15. ANZ gross impaired assets reduced 3% yoy during the period, but the total provision charge increased to $877 million.We believe that the recent correction has placed the bank at even more cheaper valuation trading at an attractive P/E of 10.3x as compared to its immediate peers.  The banks is also a strong dividend player, with a yield of 6.7%. We remain bullish on the stock and reiterate our “BUY” recommendation at the current levels of $27.53

 

National Australia Bank

• Increase in Provision Charges: National Australia Bank Ltd. (ASX: NAB) shares tumbled more than 13.2% in the month (Aug 6 to Sep 4), as the bank reported that it needs to provide £1.7 billion capital support to Clydesdale Bank related to the possible future legacy conduct costs to realize the proposed demerger and IPO of that business, during its March 2015 half year results. Management reported a further increase in provision of £290 million - £420 million related to Clydesdale Bank, might occur during the 2015 full year result. On the other hand, the group reported a decent earnings performance in spite of tough market conditions, with the revenues growing by 4% on a year over year basis during the third quarter of 2015. The cash earnings surged around 9% on a year over year basis to $1.75 billion during the quarter, and improved 6% as compared to the quarterly average of the March 2015 Half Year performance. Meanwhile, the group reported a $1.85 billion of net profit attributable to the owners of the group on a statutory basis (includes treasury shares, and fair value and hedge ineffectiveness). National Australia Bank’s charge for Bad and Doubtful Debts also slumped by 15% on a year over year basis to $193 million, mainly impacted by the lower charges in Australian Banking.
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      National Australia Bank’s credit risk exposure (Source: company reports)
 

• Stock Performance: We believe that NAB stock can be an attractive investment, as the bank has already diverted over a £1.7 billion funds under its conduct mitigation package. Moreover, the group’s agriculture and resources loan defaults provision, which the bank incurred during March 2015 fiscal half were not reflected during the June quarter, indicating a enhancing performance during the quarter. National Australia bank is trading at a cheaper P/E of 12.6x. The group has a strong dividend yield of 6.6% while its return on equity is 10.9%. Based on the foregoing, we give a “BUY” recommendation to National Australia Bank at the current stock price of $30.20
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     Woolworths Limited

• Improving pricing to address the intense competition pressure: Woolworths Limited (ASX: WOW) launched an Australian Supermarket Customer first Strategy, to expand its sales over the next three years, to battle against raising competition from Coles and other peers. The group is focusing on improving shopping experience, through offers and enhancing communication. Woolworthsinvested over $200 million on price during the second half of FY15, and estimates to do the same in the first half of FY16. Consequently, over 9,000 items from WOW were cheaper as compared to its major competitor Coles during fourth quarter of 2015, as per the Nielsen Homescan reports. WOW is also focusing on team hours during FY15 and FY16 to enhance the customer service and availability leading to a better Net Promoter Score. The group’s transition to Lean Retail Model helped them to achieve significant costs savings of >$500 million, well ahead of their targets.

       
       Lean Retail Model (Source: Company reports)
 

• Stock Performance: Woolworths shares tumbled over 10.6% in just last four weeks (Aug 6- Sep 4), due to credit rating decline for its long-term senior unsecured note from Moody’s to BBB+ rating with a stable outlook from A credit rating with negative outlook. Lower than estimated FY15 results also added the pressure. On the other hand, the group declared a solid dividend of 72 cents per share, resulting in the total fiscal year of 2015 dividends to 139 cents per share, which is a 1.5% increase as compared to the earlier fiscal year. Woolworths delivered a dividend yield of 5.5%. The recent decline have placed the shares at cheaper valuation with P/E of 14.9x, as compared to its peers (Wesfarmers P/E of 18.3x). Based on the foregoing, we reiterate our “BUY” recommendation on WOW at current price of $25.33
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Woodside Petroleum Limited

• Improving resources: Woodside Petroleum Limited (ASX:WPL)has enhanced its reserves and resources as compared to last fiscal year by acquiring interests in Wheatstone LNG, Kitimat LNG and Balnaves oil projects which were finished during April 2015. Accordingly, the Proved (1P) Developed and Undeveloped reserves rose by 18.3% to 191.8 MMboe, while the Proved plus Probable (2P) Developed and Undeveloped reserves grew by 19.5% to 260.9MMboe. The Contingent resources (2C) surged by 151% to 2,632.0 MMboe. Meanwhile, the group’s joint venture partner,Browse entered into the front-end engineering and design (FEED) phase for the planned floating LNG development. Management marked this as a major milestone of the investment decision. On the other hand, the group decreased its production by 9.7% to 42 mmboe during the first half of 2015 as compared to 46.5 mmboe in the pcp. Accordingly the operating revenues plunged 28% to $2,556 million in 1H15, against $3,551 million in 1H14. The group’s reporting profit slumped 38.6% yoy to $679 million, and as a result WPL decreased its dividends by 40.5% to 66 cents per share during the first half of 2015. But, Woodside is improving its productivity costs and targets to achieve $800 million of enduring benefits by 2016. The group finished the drilling of three wells with the Pyxis-1 well at the Carnarvon basin witnessing in a gas discovery, promising potential tie-back to the present Pluto LNG infrastructure.

 
        
 
        First half of 2015 performance (Source: Company reports)
 

• Stock Performance: The shares of Woodside Petroleum slumped by 12.2% over the last four weeks (from Aug 6 to Sep 4), as its revenues were impacted by the falling oil prices. However, Woodside is making efforts for cost optimization and maximizing utilization from its present assets. The group is enhancing the NWS Project value and developing the Julimar Project which is estimated to be ready by second half of 2016. The stock is trading at a very cheaper P/E of 8.85x and has a huge dividend yield of 9%. Any recovery in oil prices would also drive the stock higher, and accordingly we give a “BUY” recommendation to the stock at the current price of $29.66
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