Stocks’ Details
 

Oil Search Limited

Entry into FEED Phase:Oil Search Limited (ASX: OSH) is in the exploration, development and production of oil and gas resources. The market capitalisation of the company stood at A$11.15 Bn as on 18^th December 2019. The Board of the company has approved entry into the FEED phase of the Pikka Unit Development on the North Slope of Alaska, after the completion of comprehensive pre-FEED (Front-End Engineering and Design) studies. However, this is subject to the approval of the joint venture as well as finalisation of numerous third-party agreements, which are anticipated in early 2020. The following picture provides an overview of key numbers for September 2019 quarter:


Key Numbers (Source: Company Reports)

Expectation for First Gravel Mine:The company’s Alaska winter exploration and construction programme is continuing well. This activity of the company comprises of two exploration wells, where the first exploration well is expected to spud in late December and the second well in January 2020. The company stated that the first gravel mine site is anticipated to open before year-end, with gravel haul beginning in January 2020. The Final Investment Decision for the Pikka Unit Development is currently anticipated to happen in the Q3 FY20.

Valuation Methodology: Price to Earnings Multiple Based Valuation

P/E Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:At the end of Q3FY19, the cash on the books stood at US$547.3 Mn and US$635.7 million in undrawn credit facilities, which took the liquidity to US$1.18 billion. Also, in the September 2019 quarter, OSH has executed US$300 million of one-year corporate credit facilities. We have valued the stock using one relative valuation method, i.e., Price to Earnings Multiple Approach and arrived at the target price, offering an upside of lower double-digit (in percentage terms). Therefore, considering the decent liquidity position in Q3FY19 and valuation, we give a “Buy” recommendation on the stock at the current market price of A$7.550 per share, up 3.283% on 18^th December 2019 on the back of material progress with regards to Pikka Unit Development. 

Woodside Petroleum Ltd

Growth in Dry Gas Volume:Woodside Petroleum Ltd (ASX: WPL) is engaged in the exploration, evaluation, development, production as well as the marketing of hydrocarbon. The market capitalisation of the company stood at A$33.2 Bn as on 18^th December 2019. Recently, the company announced the appointment of Ms Goh Swee Chen as the Non-Executive Director, effective from 1^st January 2020. In another update, the company announced that it has experienced a rise of 52% to 11.1 Tcf in the estimated gross contingent resource (2C) dry gas volume for Scarborough field. In Greater Scarborough, the company’s interest comprises 75% interest in WA-1-R and a 50% interest in each of WA-61-R, WA-62-R and WA-63-R. During Q3FY19, the company reported a rise of 44% in the production, which reached to 24.9 MMboe as compared to the previous quarter.


Production (Source: Company Reports)

Inked Heads of Agreement:For the supply of LNG for a period of 13 years from 2021, the company has inked a Heads of Agreement with Uniper. The HOA happens to be evidence of customer support for its growth strategy. The company is progressing the negotiation for the Browse gas processing agreement as well as the Browse Joint Venture, which remains aligned on being ready to begin FEED in Q4 FY19.

Valuation Methodology: Price to Earnings Multiple Based Valuation

P/E Valuation Multiple (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation:During Q3 FY19, the company has received a positive final investment decision for the Pyxis Hub project. WPL also inked a mid-term agreement for the supply of around 3.5 million tonnes of LNG during the period starting from 2020 to 2026.  During the span of one month and three months, the stock of WPL has provided a return of 2.86% and 5.61%, respectively. We have valued the stock using one relative valuation method, i.e., P/E based multiple approach and arrived at a target price of mid-single-digit upside (in percentage terms). Thus, considering the decent growth in Q3FY19, recent agreement, and returns in the past periods, we maintain a “Hold” rating on the stock at the current market price of A$35.330 per share, up 0.284% on 18^th December 2019.

Paladin Energy Ltd

Appointment to the Board:Paladin Energy Ltd (ASX: PDN) is engaged in the development and operation of uranium mines in Africa, in combination with global exploration as well as evaluation activities in Africa and Canada. The market capitalisation of the company stood at A$172.37 Mn as on 18^th December 2019. Recently, the company announced that it has appointed Mr Peter Watson and Mr Peter Main on the role of Non-Executive Directors. In another update, the company updated the market about the status of sale of its 85% interest in Paladin (Africa) Ltd. The company would be selling 65% interest to Lotus Resources Limited and 20% interest to Kayelekera Resources Pty Ltd. Also, to progress the statutory as well as contractual consents, which are required for completion of the sale, the company is actively involved with the Minister of Natural Resources, Energy and Mining and the Minister for Finance, Economic Planning and Development in Malawi.


Financial Number for FY19 (Source: Company Reports)

Robust Balance Sheet Might Support PDN: Paladin happens to be in a robust market position and its balance sheet enables it to withstand the sustained low uranium prices. The company has been demonstrating progress with respect to the cost reduction and it added that corporate costs have been reviewed in order to determine the opportunity for further reduction.

Stock Recommendation:As at 30^th September 2019, the cash and cash equivalents of the company stood at US$40.1 million, reflecting a rise of US$14.7 million from US$25.4 million at 30 June 2019. During September 2019 quarter, the company has successfully wrapped up the placement of 262,814,641 ordinary shares in order to raise an amount of A$30.2 million. Additionally, the company has raised A$1.49 million through Share Purchase Plan (SPP). The company would be utilising the proceeds from the Placement as well as SPP to finance the working capital requirements of PDN. On the valuation front, the stock is available at EV to Sales Multiple of 16.2x as compared to the industry median (Energy) of 18.9x on TTM basis. Its Price to Book Value multiple stood at 0.6x as compared to the industry median (Energy) of 1.2x on TTM basis. Therefore, considering the increased position of cash and recent fund raising, valuation, etc., we give a “Speculative Buy” rating on the stock at the current market price of A$0.085 per share on 18^th December 2019. 

 
Comparative Price Chart (Source: Thomson Reuters)

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