AngloGold Ashanti Limited

AGG Details

Sale of Interest in SEMOS to Allied Gold Corp (AGC): Anglogold Ashanti Limited (ASX: AGG) is engaged in the exploration and development of gold with projects and operations in South Africa, Continental Africa, Australasia, and the US. As on 22^nd January 2021, the market capitalisation of the company stood at ~$11.64 billion. On 14^th January 2021, AGG announced regarding the completion of the sale of full interests in SEMOS (principal asset Sadiola mine) in Western Mali jointly held with IAMGOLD Corporation (IMG). Prior to the deal completion, both the companies reduced their interest from 41% to 40% each by selling 2% interest (1% each) to Republic of Mali in SEMOS. Henceforth, IMG and AGG each received a cash sum of US$8.2 million.

Q3FY20 Update: The gold production for Q3FY20 was 837k oz vs 825 in Q3FY19, up by 1% on pcp. The company felt the impact of COVID-19 on its South African operations (18koz production limited). The company recorded an increase of 290% in free cash flows to $339 million for the September 2020 quarter. This was due to lower costs of operations, reduced capex and 30% rise in gold prices. The cash inflows from operations stood at 551 million, up by 56% on pcp basis. The company reported a 39% QoQ decline in adjusted net debt to $875 million for September 2020 and a 47% reduction on a YoY basis, thereby experiencing the lowest gearing since 2011.

Cost & Production Highlights, Q3FY20 (Source: Company Reports)

Outlook: Outlook: The company aims to hit full rate of production for Obuasi Redevelopment Project in Ghana in 2H21 estimating an average of 350-400koz of gold a year, at an all-in sustaining cost (AISC) of $800-$850/oz (lesser than AGG’s average cost of production). AGG plans to seal investment decision on its 2 Colombian projects along-with B2Gold (operator) and will seek approval for the same in FY21. The company is also contemplating to double its dividend payout to 20% and made payout bi-annual.

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 AGG gave a negative return of 15.89% in the past three months and a negative return of 34.24% in the past six months. The stock is currently inclined towards its 52-weeks’ low level of $4.80. The stock of AGG has a support level of ~$5.76 and a resistance level of ~$6.73. We have valued the stock using an enterprise value to sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Resolute Mining Limited (ASX: RSG), Regis Resources Limited (ASX: RRL), St Barbara Ltd (ASX: SBM) and others. Considering the current trading levels, higher ROE in 1H20 vs 1H19, decent September 2020 results, outlook for FY21, and valuation, we give a ‘Buy’ recommendation on the stock at the current market price of $6.03, down by 0.823% on 22^nd January 2021.

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

Worley Limited

WOR Details

Received Key Contracts and Strengthened Liquidity Position: Worley Limited (ASX: WOR) is engaged in providing asset services and delivering professional projects to companies in resources, chemicals, and energy sectors. As on 22^nd January 2021, the market capitalisation of the company stood at ~$6.52 billion. WOR recently announced that it has received 4 master services contracts by Cheniere Energy Inc’s subsidiary companies. It will provide a suite of engineering, procurement, construction, and management (EPCM) services to Cheniere Energy’s Sabine Pass Liquefaction and Corpus Christi Liquefaction facilities in Texas and Louisiana, respectively. The company recently also bagged a 4-year contract for construction & procurement services from MSD Animal Health to upgrade their animal vaccine plant in New Zealand. During October 2020, the company strengthened its liquidity position by seeking a COVID Corporate Financing Facility (CCFF) for approx. 540 million under a commercial paper programme.

Appeal in Class Action Proceedings: On 20^th November 2020, WOR announced post its win in the shareholder class action proceedings in the Federal Court of Australia and dismissal of the case in its favour on 22^nd October 2020, the applicant has placed an application for appeal in relation to the given judgement. The legal charges will be covered by Worley’s insurers. 

FY20 Results Highlights: During FY20, the company’s revenue and other income rose to $13.06 million from $6.92 million in FY19. Its net profit after tax stood at $188k in FY20 vs $164k in FY19. The cash reserves grew to $467k in FY20 and the stock of total interest-bearing borrowings stood lower in FY20 than FY19. Its cash receipts from customers grew more than double to $13.84 million in FY20 and cash flows from operations increased to $829k as on 30 June 2020.

 Summary of Income Statement, FY20 (Source: Company Reports)

Outlook: The company is well on track and expecting to generate $190 million cost synergy from ECR acquisition and another $275 million savings in operations on account of its transformation strategy.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

PE 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 WOR gave a positive return of 16.16% in the past three months and a positive return of 40.29% in the past six months. The stock is currently trading above its 52-weeks’ average of $4.63-$16.01. The stock of WOR has a support level of ~$11.59 and a resistance level of ~$13.116. We have valued the stock using price to earnings based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Ampol Limited (ASX: ALD), CIMIC Group Limited (ASX: CIM), Senex Energy Limited (ASX: SXY) and others. Considering the current trading levels, award of new contracts, decent FY20 results and cost savings for FY21, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $12.290, down by 1.602% on 22^nd January 2021.

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

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