Woodside Petroleum Ltd

WPL’s CEO Increases Stake: Energy sector company, Woodside Petroleum Ltd (ASX: WPL) recently announced a change in its director’s interest where Peter John COLEMAN acquired 90,819 shares via indirect interest at an average value of A$35.87 per share, taking the final holdings to 686,092 shares.

In a previous update, it presented sustainable development report where it reported 3.4% energy efficiency improvement against the baseline, 1.32 total recordable injury rate per million work hours, 3.7% indigenous employment, and 30.4% female representation.


FY2018 Operational & Financial Highlights (Source: Company Reports)

Economic Outlook: As per the IEA New Policy Scenario (NPS), total gas demand will increase by 43% from 2017 to 2040. This demand in developing nations (esp. China) is expected to outstrip all other regions. Gas demand growth in the developing nations throughout Asia–Pacific and Africa is expected to outstrip all other regions, largely a result of China’s “blue-sky” initiative. In power generation, the IEA NPS projected demand growth of 31% by 2040.

What To Expect From The Company: In its 2019 production guidance, the company stated that LNG would be in the range between 70-73 MMboe, liquids in the range of 13-16 MMboe and Australian pipeline gas at 4 MMboe.

Stock Recommendation:Woodside Petroleum’s share generated positive YTD return of 16.53%. Its gross margin, EBITDA margin, and net margin for FY18 stood at 50.3%, 71%, and 28% better than the industry median of 44.3%, 37.4%, and 13.9% respectively, which implies a decent financial position of the company than its peer group. Its current ratio for FY18 stood at 2.31x better than the industry median of 1.21x implying sufficient liquidity to address its short-term obligations than its peer group.

Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $35.300 per share (down 0.647% on 17 April 2019).
 
 

BHP Group Limited

BHP Announces Quarterly Activities Report: Metal & Mining sector company, BHP Group Limited (ASX: BHP) announced quarterly activities report where it highlighted that group’s copper equivalent production was broadly unchanged over the nine months ended March 2019, with volumes for the full year also expected to be in line with last year. Full year unit costs for Petroleum, Escondida and Queensland Coal are expected to be in line with guidance. Unit costs for Western Australia Iron Ore are now expected to be below US$15 per tonne, reflecting impacts of Tropical Cyclone Veronica.

The unit costs for New South Wales Energy Coal are now expected to be approximately US$51 per tonne following changes to the mine plan. In Petroleum, the Atlantis Phase 3 project in the US Gulf of Mexico was approved and the Bélé-1 exploration well in Trinidad and Tobago encountered hydrocarbons (drilling still in progress) during the quarter.


Production & Guidance Highlights (Source: Company Reports)

What To Expect From The Company:Its production guidance for the 2019 financial year remains unchanged for petroleum, copper, metallurgical coal and energy coal. Iron ore production guidance decreased to between 265 and 270 Mt (100% basis), reflecting impacts of Tropical Cyclone Veronica. At the end of March 2019, BHP had five major projects under development in petroleum, copper, iron ore and potash, with a combined budget of US$11.1 billion over the life of the projects. During the March 2019 quarter, the BHP Board had approved US$696 million (BHP share) in the capital expenditure for Atlantis Phase 3 project in the US Gulf of Mexico.

Stock Recommendation:BHP group’s share generated positive YTD return of 21.92%. Its EBITDA margin and net margin for H1FY19 stood at 49.3% and 21.4% better than the industry median of 35.8%, and 13.3% respectively, implying a decent financial position of the company than its peer group. Its current ratio for H1FY19 stood at 2.55x better than the industry median of 1.82x, implying company’s better ability to address its short-term obligation than its peer group.

Hence, considering the aforesaid facts and current trading level, we maintain our “Hold” rating on the stock at the current market price of $38.300 per share (down 2.718% on 17 April 2019).
 

Fortescue Metals Group Ltd

Improved Guidance For Iron Ore Production & Shipment:Metals & Mining sector company Fortescue Metals Group Ltd (ASX: FMG) recently presented its operational highlights where it reported shipment of more than 1.1 Bn tonnes of iron ore out of which 27 mt of iron ore shipped to China to date. It has improved its delivery and efficiency via innovative mining such as Autonomous drills, Ore processing and beneficiation, Relocatable conveyor and Data analytics. It has investments of US$2.6 Bn in Stage 2 underpinned by Fortescue’s track record in development and operations in the Iron Bridge Magnetite project.

The company’s revenues increased to US$3,540 million in 1H19, 10 per cent higher than the 2H18 period as the average realised iron ore price increased to US$47/dmt compared to US$40/dmt in 2H18.

Operational & Financial Metrics (Source: Company Reports)

What To Expect From The Company: In its FY19 guidance, the company expects its shipment to be in the range of 165-173mt, where second half shipments are expected to be higher than the first half, inclusive of West Pilbara Fines production of 8-10mt.

Stock Recommendation:Fortescue’s share generated positive YTD return of 98.60%. Its EBITDA margin and net margin for H1FY19 stood at 44.9% and 18.2% better than the industry median of 35.8% and 13.3% respectively, which implies decent financial position of the company than its peer group. On the valuation front, its EV/Sales (trailing 12 months, TTM basis) stands at 2.6x lower than the industry median (Metals and Mining) of 162.8x, indicating under-valued position at the current juncture.

Hence, considering the aforesaid facts and current trading level, we maintain our “Hold” rating on the stock at the current market price of $7.430 per share (down 8.272% on 17 April 2019).
 

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