2 Growth stocks to buy
BlueScope Steel Ltd
Recently, the company took note of media speculation that a decision had been made to close its steelmaking activity at Port Kembla and advised that no such decision had been made yet. The company said that it continually reviews ways in which to better serve its customers through increased competitiveness. It noted that the global steel sector continues to change and that the company must change along with it. It believes that its manufacturing costs are currently too high and that it is looking for a game changer approach which can significantly reduce these costs. These aspects of business are currently being discussed as part of the negotiation on the current enterprise agreement at Port Kembla. The company is committed to maintain a steelmaking business that is internationally competitive and which will support reinvestment.
Bluescope Malaysia, Singapore & Brunei (Source - Company Reports)
The company produces steel for the domestic markets and Australia New Zealand and the US and is a major international player for products and solutions principally catering to the global construction and building industries. It is the only flat steel producer in Australia and New Zealand and focuses on high value building and construction industry steel products. It is a technology leader for metal coated and painted building products mainly focused on a joint-venture in the Asia-Pacific with Nippon Steel and Sumitomo Metal Corporation.
For the first half of FY 2015, the results continue to be impressive. Net profit after tax (NPAT) grew to $ 92.7 million compared to $ 89 million over the previous year and the underlying NPAT grew by $ 30.5 million to $ 79.6 million. The financial position continued to be strong with net debt of $ 408.1 million as at 31 December 2014 working out to only 0.6 times the underlying EBITDA. The board of directors has approved a fully franked dividend of 3 cents per share. Australian Steel Products reported an underlying EBIT of $ 64.7 million up $ 50.8 million over the previous year. NZ Steel and Pacific reported underlying EBT of $ 2.6 million compared to $ 38.6 million in the previous year because of lower iron sands prices and volumes partly offset by an improved product mix for steel. Building Products ASEAN, North America and India reported underlying EBIT of $ 47.8 million down $ 3.1 million over the previous year because improvements in Indonesia and India were offset by less robust performance in Malaysia, Vietnam, Thailand and North America. Global Building Solutions reported underlying EBITDA of $ 19.3 million down $ 1.2 million over the previous year because strong performance in North America Buildings and Coastal China were more than offset by weaker performance in the engineered buildings business in China. Finally Hot Rolled NA reported an increase of $ 18.4 million to $ 67.1 million as dispatches continue to be 100% of production, spreads were strong and exchange rates favourable.
Bluescope Steel Daily Chart (Source - Thomson Reuters)
For the second half of FY 2015, underlying EBITDA is expected to be 20% higher than the previous year because of the impact of business growth and the benefits of continued weakening of the AUD against the USD though falling global steel prices.
will result in some margin compression. Net finance costs and underlying tax rates are expected to continue at the same levels.
We consider this stock to be underpriced considering that given that the company has the opportunity to position itself as a downstream producer of high-quality products to serve as a shield against the cycles of commodity prices. There is potential for upside as there is significant value which could be gained by investors. We also believe that the sum of the parts is considerably more than the current stock price and would have no hesitation in recommending a Buy at the current price of $3.00.
Karoon Gas Australia Limited
The company follows the strategy of seeking high-quality equity interests in exploration projects in the early stages involving proven production systems that can provide opportunities. It seeks to create shareholder value by employing its geo-technical skills on the acreage, leveraging its equity investments to create funding and aims to retail a substantial equity position through the development phase and into production. It uses its abilities to take forward the best opportunities from within its portfolio to obtain the maximum advantage.It has a market capitalisation of $ 590 million with 246.6 million ordinary shares on issue as well as 11 million unlisted options. Cash and cash equivalents as at 31 December 2014 amounted to $ 680 million and, through its buyback program, has purchased approximately 4% of its outstanding shares for the half-year ended 31 December 2014.
It has a proven track record with its exploration led strategy delivering an exploration drilling success rate of 67% from 18 exploration wells since its inception. It is focused on its exploration with two major exploration wells planned for the quarter of June 2015 and the target is total net productive resources of a best estimate of 205 mmbbls squared. The funding position is strong and in addition to the cash holdings, $ 200 million worth of contingent payments remain outstanding from milestones from Origin Energy. Production priorities include organic development opportunities while the present low oil price environment facilitates acquisition opportunities for production assets.
Karoon Global Footprint (Source - Company Reports)
The capital expenditure programme for FY 2015 is forecast at approximately USD 180 million covering 4 wells and 2 sidetracks at Kangaroo 2. A one well option has been taken up in the Santos basin drilling program for Echidna 1. Non-essential expenditure is being deferred wherever possible, a 3-D seismic survey over 5256 km² of Western Australia is being acquired and a farm out campaign is being planned on acreage for exploration. The highlights for the operations report for the quarter ended 31 March 2015 showed that the Kangaroo 2 appraisal well created a maximum flow rate of 3700 stb/d and this confirms reservoir production in the discovery. The Echidna 1 exploration well showed a light oil accumulation which would provide incremental resources for the Kangaroo exploration well.
Karoon Daily Chart (Source - Thomson Reuters)
There is no doubt that the company is in a high risk high reward business but the strategy was recently vindicated when Origin Energy bought a stake in its natural gas project for $ 800 million providing a major boost to the share price. We believe that in view of the substantial exploration program, the company is going to see growth which could transform it completely. Moreover, we believe that in addition to the Browse Basin, other projects and offshore Australia also have considerable promise and this stock is not a single asset play. We put a buy recommendation on the current price of $2.25.
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