Origin Energy Limited

A Quick Look at March 19 Quarter: Origin Energy Limited (ASX: ORG) is primarily into the operation of energy businesses. The market capitalisation of the company stood at ~A$13.05 Bn as on 3^rd July 2019. Recently, the company, via a release dated 1^st July 2019, announced the resignation of Andrew Clarke as Company Secretary, effective from 30^th June 2019. It also added that Helen Hardy will remain as Company Secretary of the company. Moving to the quarterly report, it reported a rise of 53% in APLNG revenue against March 18 quarter, which has been fueled by higher effective oil prices.

Coming to the Energy markets, the electricity sales volume witnessed a rise of 7% in comparison to Dec-18 quarter, which is representing seasonal demand. With regards to the climate change initiatives, the company is growing renewables and aiming an additional 530 MW contracted wind online by 2020, and it is committed to halving carbon emissions by 2032.


Operational Summary (Source: Company Reports)

Future Prospects: Irrespective of planned outages on gas processing facilities in 2019, the company witnessed stable production.  The company is expecting significant new US supply in 2020- 2022. It is expecting cash distribution for FY19 from APLNG of around A$850 Mn, which is subject to FX.

Stock Recommendation: The company’s commitment for cost reduction is on track. The net margin of ORG stood at 10.4%, reflecting a rise of 12.3% on the YoY basis. This showcases that Origin Energy Limited has improved its capability to convert its top line into the bottom line. Coming to the stock’s past performance, it produced a return of 3.78% and 17.25% in the time span of three months and six months, respectively. Hence, considering the above-stated facts and decent outlook, we give a “Buy” recommendation on the stock at the current market price of A$7.430 per share (up 0.27% on 3^rd July 2019).
 

South32 Limited

Changes in Coal Reserves: South32 Limited (ASX: S32) happens to be a globally diversified mining and metals company. The market capitalisation of the company stood at ~A$16.47 Bn as on 3rd July 2019. Recently, the company announced the cancellation of 14,639,089 fully paid ordinary shares as a part of the on-market share buy-back. Moreover, the company, via its release dated 17th June 2019, updated the market about changeswhich happened in the estimates of Coal Reserves for Illawarra Metallurgical Coal after the conclusion of a commercial agreement to relinquish a portion of its mining lease in Appin area. The company reported reduced coal reserves for Bulli seam by 22Mt to 114Mt following the change. S32 further added that there was no change in Coal Reserves for the Wongawilli seam. The Australia Manganese Ore unit costs have remained steady irrespective of the rise in strip ratio. It is pursuing further optimisation of the PC02 circuit. With respect to South Africa Manganese Ore, there was Completionof the Wessels central block project along with increased sales of the premium product.

The company witnessed a rise in net cash from US$48Mn to US$726Mn despite an increase in working capital and the allocation of a further US$37Mn to on-market share buy-back in the quarter.

1H FY19 EBITDA Contribution (Source: Company Reports)

What to Expect: The company started a drilling program at the Eagle Downs Metallurgical Coal project in order to support the completionof the feasibility study ahead of a final investment decision which has been scheduled for the December 2020 half year.The company had decreased FY19 production guidance at South Africa Energy Coal, which includes low margin export production by 0.8Mt and domestic production by 2Mt after the community protests and a slower than expected ramp-up of activity at Klipspruit after an insurable dragline outage.

Stock Recommendation: Talking about the liquidity position of S32, the current ratio stood at 2.19x in comparison to the industry median of 1.88x, which implies that the company is capable to meet its short-term obligations in comparison to the broader industry.  The EBITDA margin of the company stood at 25.8%, reflecting a YoY growth of 1.3%. With respect to stock’s past performance, it witnessed a return of 0.61% and 1.05% in the time span of one month and six months, respectively. Also, the company’s RoE stood at 5.9% in 1H FY 2019, which reflects a rise of 0.6% on the YoY basis and, thus, it looks like that the company has been delivering decent returns to its shareholders. As per ASX, the annual dividend yield of South32 Limited stood at 4.81% which can be considered at respectable levels. Also, the stock of the company is trading towards its 52-week lower levels of $2.987.  Hence, considering the aforesaid parameters and current trading level, we give a “Hold” recommendation on the stock at the current market price of A$3.280 per share (down 0.304% on 3^rd July 2019).

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