Santos Limited

STO Details

Resolutions Proposed at the Upcoming AGM: Santos Limited (ASX: STO) is engaged in the exploration and mining of petroleum and natural gas. As on 4^th February 2021, the market capitalisation of the company stood at ~$14.16 billion. The company notified the market on 3^rd February 2021 regarding receipt of a notice to consider 2 requisition resolutions at the AGM to be held on 15 April 2021. One of the resolutions requests an annual report on the company’s capex and detail of operations consistent with the climate goals of the Paris Agreement. The announcement confirms STO’s commitment and target of net-zero emissions by FY2040 and attempts to align business with the Paris Agreement’s central goal to reduce global temperature to below 2 degrees Celsius pre-industrial levels. The company has stated that it will publish a meeting notice in March encompassing all resolutions to be considered at the meeting, Board’s reply and voting recommendations.

Q4FY20 (Ending December 2020) Result Highlights: During December 2020 quarter, the company reported record production of 25.4 mmboe, up 1% from Q3FY20. With this, it also achieved the highest FY20 production of 89 mmboe, up 18% YoY, which was at the high end of the revised guidance provided in December 2020. The company also recorded the highest sales volume for the quarter at 31.1 mmboe, an increase of 7% on QoQ basis. STO registered sales of US$922 million, up by 16% QoQ, mainly due to stronger LNG sales prices (up 25%) and volumes (up 23%) which brings the annual sales revenue to US$3.4 billion.

Comparative Key Performance (Source: Company Reports)

Outlook: The company has provided the following estimates for FY21. It forecasts production range of 84-91 mmboe, sales volumes between 98-105 mmboe, capex to be approximately at $900 million in the base business. The company also plans to sell-down 25% interests held in Bayu-Undan and Darwin LNG to SK E&S during 1HFY21.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of STO gave a positive return of 36.36% in the past three months and a positive return of 17.59% in the past six months. The stock is currently trading towards its 52-weeks’ high level of $8.45. The stock of STO has a support level of ~$6.44 and a resistance level of ~$7.03. We have valued the stock using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of high-single digit upside (in % terms). For the purpose, we have taken peers like Woodside Petroleum Limited (ASX: WPL), Oil Search Limited (ASX: OSH), Origin Energy Limited (ASX: ORG), to name few. Considering the current trading levels, decent financial results of FY20, record production and sales volume, along with modest outlook for FY21, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $6.75, down by 0.736% on 4^th February 2021.

STO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Orocobre Limited

ORE Details

Q2FY21 Financial Highlights: Orocobre Limited (ASX: ORE) is an Argentinian-based (substantially) minerals and industrial chemicals player with portfolio operations in potash, lithium and boron projects and facilities in Argentina. The company is running lithium facility at Salar de Olaroz (flagship project) and Borax operations in Argentina. The project has been built in association with Toyota Tsusho Corporation and the investment wing of the Jujuy Provincial Government (JEMSE). As on 4^th February 2021, the market capitalisation of the company stood at ~$1.79 billion. During Q2FY21, the company produced 3,727 tonnes of lithium, up by 58% QoQ, due to higher demand, improved operating practices and plant stability. For Q2FY21, the company recorded the highest sales volume of 4,345 tonnes, up by 28% QoQ. It posted sales revenue of US$16.5 million, up 57% on QoQ basis.  The company held cash of US$246.8 million as at 31 December 2020 out of which US$70.7 million has been held as pre-completion guarantees for the Olaroz Expansion debt and Naraha debt facility.

For Q2FY21, the company reported sales volume of 10,573 tonnes, up 18% QoQ and 23% YoY. During the quarter, the company posted 14% QoQ growth in total sales revenue.

Production and Sales Highlights, Q2FY21 vs Q1FY21 (Source: Company Reports)

Outlook: The company is reviewing and planning Stage 2 expansion to commence production in 2HCY22 and accelerate over 2 years to full capacity of 25,000 tonnes per year of primary grade lithium carbonate till 2HCY24 on its Olaroz lithium project. The company expects recovery in lithium volumes & prices to continue and realised 2H21 prices are expected to grow more than 50% to ~US$5,500/tonne (FOB).

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of ORE gave a positive return of ~6.5% in the past one month and a positive return of ~53.96% in the past six months. The stock is currently trading towards its 52-weeks’ high level of $6.06. The stock of ORE has a support level of ~$4.76 and a resistance level of ~$5.343. We have valued the stock using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of high single-digit upside (in % terms). For the purpose, we have taken peers like Galaxy Resources Limited (ASX: GXY), Pilbara Minerals Limited (ASX: PLS), Nickel Mines Limited (ASX: NIC), to name few. Considering the decent results of Q2FY21, increase in production and sales volume on a QoQ for both Borax and Lithium operations, decent outlook for lithium prices, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $5.050, down by 3.442% on 4^th February 2021.

ORE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.