Oil Search Ltd

OSH Details

Robust result: For H1FY17, Oil Search Ltd (ASX: OSH) delivered a net profit of US$129.1 million, more than five times the first half of 2016 and 21% above 2016 full year core net profit. This led to a stock price rise of 3.3% on August 22, 2017. The robust result was driven by 16% increase in sales revenue to US$676.2 million due to materially higher average realised oil/condensate and LNG/gas prices, which increased by 28% and 26%, respectively. Further, 12% reduction in operating costs, resulted in total unit production costs of US$8.52 per boe and an increase in operating margin to 74%.Moreover, depreciation and amortisation expenses declined by 13% due to lower depreciation and amortisation rates for the PNG LNG Project as a result of a material increase in Project reserves following recertification.


H1FY17 financial performance; (Source: Company reports)

Based on the record performance achieved by the PNG LNG Project, the company has upgraded its full year production to be between 29.0 and 30.5 mmboe, while full year unit production cost guidance has been reduced from US$8.00 - 10.00/boe to US$8.00 - 9.50/boe. Further, unit depreciation and amortisation guidance has also been revised down, from US$12.00 - 13.00/boe to US$11.50 - 12.50 per boe. Total capital expenditure for 2017 is now estimated to be between US$350 million and US$400 million, compared with previous guidance of US$380 - 480 million. During the first half, the company remained focused on optimising its cost base and driving operational efficiencies. Unit production costs, including upstream, pipeline and downstream costs were maintained at US$8.52 per boe, which contributed to a strong operating margin of 74%, up from 65% in the previous corresponding period. Given the robust performance, cost controlling measures and healthy cash flows post expansion of liquified natural gas (LNG) projects, we maintain a “Buy” recommendation on the stock at current market price of $ 6.60

Seven Group Holdings Ltd

SVW Details

Improved performance from Coates Hire: Seven Group Holdings Ltd (ASX: SVW) posted a revenue growth of 2% on the prior year, despite a 21% fall in Product Sales mainly due to the delivery of Roy Hill mining fleet in the prior year. While new equipment mining sales remain challenging, construction sales increased 16%, Product Support revenue grew 14% off record parts volumes as customers sought to ameliorate their maintenance backlog on an ageing fleet. The group reported a 10% increase in underlying EBIT to $333.3 million, driven by ongoing improvements in its industrial services businesses, WesTrac and Coates Hire. Importantly, operating businesses continue to benefit from the group’s focus on margins, overheads and cash conversion, resulting in an increase in the final dividend to 21 cents per share. Underlying NPAT increased by 17% yoy to $215.4 million, while the statutory NPAT declined to $46.2 million due to the impact of significant items.


Financial performance; (Source: Company reports)

Notably, the group’s share of results from Coates Hire improved $19.5 million against the prior year with a reinvigorated management team capturing the infrastructure and construction activity in New South Wales and Victoria. Further, the fleet relocation, price realisation and branch rationalisation initiatives led to 36% increase in Coates Hire’s EBIT margin. The stock has moved up 22.7% over the last six months, while it is up 42.3% in the past one year as at August 21, 2017. The stock rose 8.9% on August 22, 2017. We maintain an “Expensive” recommendation at the current market price of $ 12.85

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