BHP Billiton Limited
Strong Contribution across the portfolio: BHP Billiton Limited’s (ASX: BHP) stock climbed up 0.435 percent on September 28, 2018 because of commodity price rise ahead of US sanctions against Iran; and this stock traded flat on October 1st 2018. BHP is the well-diversified commodity company with the principle activity of exploration, development & production of oil and gas, mining of copper, silver, lead, zinc, molybdenum, uranium, gold, iron ore, metallurgical coal, and energy coal. The company has four main business verticals, i.e., Petroleum, Copper, Iron ore and Coal which contributed around 13%, 31%, 35%, and 21% revenue in total revenue respectively, in FY18. Segmental EBITDA and RoCE has been positive for all the segments of the company. Besides this, the company pegs the capital expenditure for the next financial year around less than US$ 8.0 billion per annum to FY20. The major part of the capital would be spent on the maintenance, improvement, latent capacity, major projects, exploration activity, Onshore US development activity, the benefit of which would be realized in the long run and add value to the shareholders. Based on higher production and sales growth, the group delivered positive free cash flow while investing in asset portfolio to deliver the near-term growth which will deliver productivity gain of approximately US $1.0 Bn in FY19. In other words, this has resulted in an uplift of 9.9% in operating cash flow to $18.5 million in FY18 over the prior year. As of June 30, 2018, BHP’s gearing ratio stood at 15.3% reflecting the considerable decline. As of June 30, 2017, it was 20.6%. With the positive outlook on copper and oil price, the group is set to deliver significant growth for its shareholders. The group has a sound balance sheet with a debt reduction plan, and high cash flows and healthy operating margin makes it a value stock in the long run.
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Strong Contribution across the portfolio in FY18 (Source: Company Reports)
Meanwhile, the share price has risen 18.94 percent in the past six months (as at September 27, 2018) and traded near-term to Exponential moving averages (EMA) suggesting the continuation of the positive momentum. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $34.610.
Woodside Petroleum Limited
Strong Business Roadmap supports Overall Growth Momentum:Woodside Petroleum Limited (ASX: WPL) is a blue-chip company with the market capitalization of circa $36.12 Bn as of October 1, 2018. The stock price edged down 0.155% on September 28, 2018 after the recent rally that was seen owing to the positive market sentiment in relation to oil price rise. WPL is the most experienced LNG operator and largest independent Oil and Gas Company in Australia which is engaged into the exploration, evaluation, development, production, marketing, and sale of hydrocarbons. The company has a well-diversified portfolio i.e., liquefied natural gas (LNG), pipeline natural gas (PNG), condensate, liquefied petroleum gas, and crude oil. From the analysis front, it has a return on equity or ROE of 3.4% as at 1H FY18 which is in-line with the prior corresponding period (PCP). The company has a current ratio of 1.70x in 1HFY18 reflecting the decent rise from 0.99x in 1HFY17. Moreover, WPL has a gross margin of 49.9% in 1HFY18 as compared to 47.8% in 1HFY17, displaying Y-o-Y growth of 210 bps. However, in 1H FY18, the company’s Net margin stood at 24.8% while in the prior corresponding period it was 29.6%. At 30 June 2018, the Group had a cash reserve of $1,133 Mn as compared to the prior corresponding period of $318 Mn. On the working capital front, Average receivable days and inventory days for 1H FY18 came in at 30 days and 27 days, respectively which is lower than the prior corresponding period figures of 43 days and 32 days. Resultantly, the cash conversion cycle (CCC) stood at negative 39 days, reflecting better management policy towards its working capital policy. We believe that the company has a clear roadmap for growth which will get strengthened by its outstanding base business thereby ensuring growth momentum for the upcoming period.
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Business Roadmap (Source: Company Reports)
Meanwhile, the stock has been rewarding the shareholders, generating Year to date (YTD) return of 17.73% and it traded at reasonable PE level of 24.39x. Hence, we maintain our “Hold” recommendation on the stock at the current price of $38.45, justifying that the company focuses on to deliver the committed growth that will underpin the targeted production of approximately 100 million barrels of oil equivalent in 2020.
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