Origin Energy Limited

Underlying Profit for FY19 Improved By 42% on Previous Period:Origin Energy Limited (ASX: ORG) is involved in the operation of energy businesses, including exploration and production of natural gas, electricity generation & sale of electricity and liquefied natural gas. Recently, company’s director Frank Calabria acquired 452,742 Performance Share Rights and 143,242 Restricted Shares, effective October 16, 2019.

FY19 Key Highlights for the period ended June 30, 2019:Statutory profit for the period was reported at $1,211 Mn, representing 333% increase on previous period. Underlying profit for the period was reported at $1,028 Mn, a 42% increase on previous period. Underlying EBITDA for the period was reported at $3,232 Mn, as compared to $2,787 Mn in previous period. The strong earnings can be attributed to higher effective oil price, cost efficiencies and stable production at Australia Pacific LNG. The energy markets experienced moderately reduced earnings in electricity as a result of price relief measures provided to customers, impact from the heightened retail competition and lower average customer numbers and usage. The company witnessed a reduction in financing cost with a reduced debt of $5.4 Bn as on June 30, 2019. The Board of Directors declared a fully franked final dividend of 15 cents per share, taking the total dividend to 25 cents per share in FY19.
 

FY19 Key Metrics (Source: Company Reports)

What to expect:In FY20, the company expects underlying EBITDA to be in the range of $1,350 million - $1,450 million. Corporate costs for the year are anticipated to be in the range of $70 million - $80 million. Australia Pacific LNG is expected to report production in the range of 680 – 700 petajoules. During the year, the company plans to incur capex in the range of $530 million and $580 million. Guidance for capital expenditure was issued after excluding Australia Pacific LNG.

Stock Recommendation:The stock of the company generated returns of -0.38% and 1.02% over a period of one month and three months, respectively. FY19 was a period of strong earnings by Integrated Gas on the back of cost efficiencies, stable production at Australia Pacific LNG, and higher effective oil price. Financial performance further improved on the back of a reduction in financing costs due to debt reduction and a lower average interest rate. Going forward, the debt balance is expected to reduce further upon the sale of Ironbark asset to Australia Pacific LNG for $231 million. EV/Sales and EV/EBITDA multiples on TTM basis stand at 1.4x and 6.2x, lower than the industry median of 4.1x and 8.8x, respectively. As per ASX, 52-week trading range of the stock stands at $6.030 to $8.140 and currently, the stock is trading at the upper band of its 52-week trading range. Hence, considering the aforesaid factors and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $7.920, down 0.252% on 30 October 2019.
 
 

Worley Limited

WOR Concludes UK based 3sun Group Ltd Acquisition:Worley Limited (ASX: WOR) is involved in providing engineering design and project delivery services. The company operates in the energy, chemicals and resources sector. Recently, the company concluded the acquisition of 100% shares in 3sun Group Ltd, a UK based offshore wind energy installation, inspection and maintenance business for an enterprise value of £20 Mn. The acquisition of 3sun will provide Worley with a leading position in the high growth offshore wind energy services sector in the UK and Europe. This development will further help the company in growing its offshore wind energy Operations and Maintenance (O&M) business and expand in other markets such as North America and Asia Pacific.

In another update, the company’s shareholders passed a special resolution to change its name to “Worley Limited”, with the same ticker.

FY19 Highlights for the period ended June 30, 2019: Aggregated revenue increased by 36% to $6,439.1 million. Underlying EBITA increased by 32% to $412.8 million. Underlying net profit after tax, excluding the post-tax impact of amortization of intangible assets acquired through business combinations (NPATA) increased by 43% to $259.8 million. The Board of Directors had declared a final dividend of 15 cps, unfranked, with record date and payment date on 28 August 2019 and 25 September 2019, respectively.


FY19 Key Metrics (Source: Company Reports)

What to expect: The company has been seeing continued improvement in market conditions for the energy, chemicals and resources sectors. On ECR acquisition, the company has enhanced the diversity and resilience of its earnings and expects realization of cost, margin and revenue synergies in FY20.

Stock Recommendation: WOR’s shares generated a positive YTD return of 21.60%. Its gross margin for FY19 stood at 8.0%, better than the FY18 result of 7.9%. Its debt to equity multiple for FY19 stood at 0.36x, better than the FY18 result of 0.45x. FY19 was a period of diversified earnings from increased opex and chemical revenues. The company witnessed a decent underlying revenue growth along with the contribution from ECR acquisition, which is expected to increase further in FY20. The period was also marked by improvement in NPATA margins. Considering the above factors andcurrent trading levels, we recommend a “Buy” rating on the stock at the current market price of $13.730, down 0.435% on October 30, 2019.

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