Stocks’ Details

WorleyParsons Limited

Annual General Meeting to be held on 21 October 2019: WorleyParsons Limited (ASX: WOR) provides engineering design and project delivery services, which include maintenance, reliability support services as well as advisory services. It has a market capitalisation of ~A$6.75 Bn as on 1^st October 2019. The company has recently announced that it will be conducting its 2019 Annual General Meeting on 21^st October 2019. The agenda of the annual general meeting will be (1) re-election and election of directors, (2) remuneration report, (3) grant of deferred restricted share rights to Mr Andrew Wood, (4) grant of long term equity performance rights to Mr Andrew Wood, (5) approval of leaving entitlements, (6) renewal of proportional takeover provisions, and (7) change of company name.

For the year ended 30^th June 2019, the company reported a statutory net profit after tax, which excludes the post-tax impact of amortization of intangible assets acquired through business combinations (NPATA) amounting to $172.3 Mn. This implies a rise of 137% on the result for the pcp of $72.8 Mn.The following picture provides an idea of the key numbers for FY19:


Financial Summary (Source: Company Reports)

What to Expect:  The company stated that the energy, chemicals and resources market indicators and growth in backlog provide evidence of continued improvement in market conditions. The company has enhanced the diversity and resilience of its earnings, as a result of the ECR acquisition. The company anticipates delivering the benefits of the acquisition of ECR, including the realization of cost, margin and revenue synergies in FY20. It has the global technical and financial strength in order to support its energy, chemicals and resource customers as they navigate a changing world.

Stock Recommendation:In FY19, the company reported an asset to equity ratio of 1.85x as compared to 2.01x in FY18. RoE stood at 3.8% with current ratio of 1.35x in FY19. Currently, the stock is trading closer to its 52-week low levels of $10.72, indicating a decent opportunity for accumulation. Hence, considering aforesaid facts and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$13.050 per share (up 0.307% on 1^st October 2019).
 

Oil Search Limited

Key Personnel Changes:Oil Search Limited (ASX: OSH) is in exploration, production and development of oil and gas resources and it has a market capitalisation of ~A$11.16 Bn as on 1^st October 2019.As per the release dated 1^st October 2019, the company announced that Managing Director, Mr Peter Botten will be succeeded by Dr Keiran Wulff on the same designation on 25 February 2020. It was also mentioned that in order to ensure a smooth transition of responsibilities from Mr Botten to Dr Wulff, Dr Wulff has been appointed as Chief Executive Officer on 30 September 2019. The following picture provides an overview of financial results for the six months to 30^th June 2019:


Half Yearly Results (Source: Company Reports)

Future Aspects:With respect to PNG LNG, the company expects production of 8.1 – 8.7 MT (gross) for 2019, which includes first half reducedrates because of 1H maintenance, with no major maintenance expected in 2H FY19.The company is expecting total production in the range of 28 – 31 mmboe for FY19. It anticipates production costs in the ambit of US$11.00 – 12.00 / boe and other operating costs of between US$135 – 145 million for FY19.
Stock Recommendation:From the analysis standpoint, its gross margin for 1HFY19 stood at 48.6%, which is better than the prior corresponding period of 47.2%. EBITDA margin and Net margin for 1HFY19 stood at 71.7% and 20.8%, respectively, which were better than the industry median of 37.2% and 18.7%, respectively. RoE stood at 3.1% in 1HFY19. Currently, the stock is trading closer to its 52-week low levels of $6.300 with PE multiple of 18.37x and an annual dividend yield of 2.65%. Hence, in light of above-stated facts and current trading levels, we give a “Buy” recommendation on the stock at the current market price of A$7.190 per share (down 1.776% on 1^st October 2019).
 

Santos Limited

Update on Barossa Project: Santos Limited (ASX: STO) is primarily engaged in the exploration, development, production and sales of natural gas both onshore and offshore. It has a market capitalisation of ~A$16.1 Bn as on 1^st October 2019. As per the release dated 26^th September 2019, the company announced that Barossa project has taken another big step towards a final investment decision early next year with the award of gas export pipeline contract. It added that the gas export pipeline would tie the Barossa gas field, 300 Km north of Darwin, into the existing Bayu Undan to Darwin Pipeline.

In the release of 23^rd September 2019, the company stated that the multi-rate flow testing of Dorado field in the Bedout Basin, offshore WA, has confirmed excellent productivity and fluid quality from Baxter gas and condensate reservoir. It added that the well test was conducted over a 7.4 metre net interval between 4,136 and 4,156 metres Measured Depth and achieved with only 150 psi of drawdown. The following picture provides an idea of financial results for the half-year ended 30^th June 2019:


Financial Summary (Source: Company Reports)

Future Priorities:As per the half-year results report, the company stated that its forecast free cash flow breakeven oil price for 2019 has now been reduced to around US$31 per barrel, which is in accordance with 2018 notwithstanding higher capex this year. The company anticipates sales volume in the ambit of 90 to 97 mmboe and production guidance has been maintained in the vicinity of 73 to 77 mmboe for 2019.

Stock Recommendation:During 1HFY19, the company reported EBITDA and Net margin of 57.2% and 19.0%, which were higher than the industry median of 37.2% and 18.7%, respectively. Further, the returns generated for the shareholders are slightly below the industry as ROE was reported at 5.2% in 1HFY19 as compared to the industry median of 5.3%. Current ratio stood at 1.61x with a debt-to-equity ratio of 0.61x in 1HFY19. On the stock’s performance front, it produced returns of 7.21% and 7.51% in the time period of one month and three months, respectively. Currently, the stock is slightly towards its 52-week high level of $8.040 with PE multiple of 12.33x and an annual dividend yield of 2.26%. Hence, considering the above-stated facts and current trading levels, we maintain our “Hold” recommendation on the stock at the current market price of A$7.680 per share (down 0.647% on 1^st October 2019).

 
Comparative Price Chart (Source: Thomson Reuters)

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