Stocks’ Details 

Origin Energy Limited 

Well Placed for Long-Term: Origin Energy Limited (ASX: ORG) is Australia’s leading energy company that operates two strong cash-generating businesses- Energy Markets and Integrated Gas. The company has a market capitalization of $8.26 billion as on 14 September 2020.

Latest Updates: Recently, the company announced that AustralianSuper Pty Ltd, a substantial holder of the company has increased its voting power from 6.23% to 7.32%. In another update, the company stated that Mr Gordon Cairns will step down from his post of Chairman and Director post the company's Annual General Meeting on 20 October 2020.

Results Performance (Year ended 30 June 2020): During FY20, the company reported an underlying profit from continuing operations at $1,023 million, as compared to $1,028 million reported in FY19. Further, the company reported a statutory profit of $83 million for FY20. The underlying EBITDA for the period stood at $3,141 million as compared to $3,232 million reported in FY19. For FY20, the company paid a total dividend of 25 cents per share.  Further, the company reported free cash flow of $1,644 million, up from $1,539 million reported in FY19.

Segment Performance: Underlying EBITDA for Integrated Gas declined 8% year over year and came in at $1,741 million, primarily due to change in accounting treatment for dewatering and workover costs at Australia Pacific LNG. The Integrated Gas delivered record production of 708 petajoules during the year, a 4% increase compared to pcp.  During the period, the company observed margin pressure in Energy Markets with the impact of price re-regulation, as well as lower volumes reflecting reduced energy usage and lower customer numbers. Underlying EBITDA for Energy market declined 7% year over year and came in at $1,495 million.

Key Financial Highlights (Source: Company Reports)

Outlook: In Energy Markets business, the company expects its FY21 underlying EBITDA to be in the range of $1.15 - $1.3 billion. From APLNG, the company expects the FY21 production to be in the range of 650 to 680 petajoules, reflecting anticipated lower demand with strong field capability to increase production in response to changes in demand. In FY21, the company expects its capital expenditure to be in the range of $420 million- $470 million.  The company remains on track to simplify the business, significantly reduce upstream costs at Australia Pacific LNG and materially reduce debt which has put the company in a financially resilient position.

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

P/E Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months 

Stock Recommendation: In FY20, the company’s gross margin stood at 18.4%, slightly higher than the pcp. For the same period, the company has EBITDA margin of 8.9%, higher than the year-ago figure of 7.3%. The stock is currently trading at the lower end of the 52-week low-high band ($3.75-$8.89), implying the potential for value growth for the investors. On the technical analysis front, the stock of the company has a support level of ~A$3.9 and a resistance level of ~A$5.2. We have valued the stock using P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the aforesaid facts, its decent FY20 operating performance, future plans to infuse operational efficiency, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $4.71, up by 0.426% on 14 September 2020.

New Hope Corporation Limited 

Resilient Business: New Hope Corporation Limited (ASX: NHC) is a diversified energy company with business interests and operations spanning coal mining, exploration, port operation, oil, agriculture, innovative technologies and investment. The company has a market capitalization of $932.24 million as on 14 September 2020.

Quarterly Results (for the period ended 31 July 2020): During the period, the company produced 2.792 million tonnes of saleable coal, down 15.8% on the previous year. The company sold 2.358 million tonnes of coal during the July quarter, down 29.3% year over year. One of the major highlights of the year was the acquisition of an additional 30% interest in the Bengalla mine, taking the total interest to 80%. The Bengalla Mine (100% basis) produced 10.3 million tonnes of coal in July quarter. The production from Queensland operations was slightly lower than the previous year, impacted by COVID19 travel restrictions. A significant highlight was the production optimisation from well workovers resulting in increased production. During the period, the company successfully de-risked its exploration portfolio with farm-out of work programme activities.

July Quarter Highlights (Source: Company Report)

Outlook: Due to the sudden decline in thermal coal prices and reduced coal production from the company’s Queensland coal operations, it is expected that the financial performance will be impacted, going forward. Currently, the company is focused on managing costs and risks across the business and obtaining Acland Stage 3 approvals. The company is carefully budgeting resources to develop future projects with a risk-managed approach. With a solid balance sheet and cashflows and longstanding banking and coal marketing relationships, the company seems well-positioned to meet the growing energy demands of its Asian customers.

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative)

P/CF Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: For H1FY20, the company’s net margin stood at 11.3%, higher than the industry median of 3%. The company has a current ratio of 1.67x, higher than the industry median of 1.09x, demonstrating that the company is well equipped to pay its short-term obligations. The company has a debt to equity multiple of 0.22x, lower than the industry median of 0.54x. On the technical analysis front, the stock of the company has a support level of ~A$1.00 and a resistance level of ~A$2.1. The stock is currently trading at the lower end of the 52-week low-high band ($1.015-$2.620), implying potential for value growth for the investors. We have valued the stock using a P/CF multiple based illustrative relative valuation method and have arrived at a target price of an upside of lower double-digit (in % terms). Considering the growth in the company’s top-line over the past five years, its decent operational performance in H1FY20, focus areas, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $1.215, up by 8.482% on 14 September 2020.

Coronado Global Resources Inc

Increased Operational Efficiencies from the Curragh Mine: Coronado Global Resources Inc (ASX: CRN) is primarily engaged in the development and operation of premium quality metallurgical coal mines in Queensland, Australia. The market capitalisation of the company stood at $1 billion as on 14 September 2020.

Key Updates: Recently, the company informed the market that it has successfully completed the “Retail Entitlement Offer” of its fully underwritten 2 for 11 pro-rata accelerated “Entitlement Offer”, which was earlier announced on 18 August 2020. In another update, the company stated that William Koeck, a substantial holder of the company, has acquired 79,500 CDIs in two tranches of 69,006 CDIs and 10,494 CDIs for a consideration of AUD 0.645 per CDI and AUD 0.64 per CDI, respectively.

Results Performance (Year ended 30 June 2020): Recently, the company released its results for 1H FY20, wherein, it reported realised metallurgical coal pricing of US$97.3 per tonne, down 29.2% as a result of weak market conditions and steep fall in metallurgical coal prices. CRN reported production and sales volume of 8.0 Mt and 8.3 Mt, reflecting a fall of 23.1% and 20.2%, respectively, on pcp. The company has decided to suspend dividend for 1H FY20 in line with current market conditions and its distribution policy. The company’s reported revenue for the period amounted to US$713.7 million, down by 42.2% on pcp, due to lower sales volume and lower average realis During 1H FY20, CRN posted a net loss of US$123.2 million due to lower EBITDA and impairment charges of $63.1 million.

Key Highlights (Source: Company Reports)

Outlook: The company stated that its US operations are likely to produce saleable coal at a lower capacity to match market demand and reduce inventory levels during 2H FY20. The company’s focus for the remaining FY20 will revolve around meeting demands of its customers and capital preservation. The company enjoys a leading position in the market, with a diversified production base, significant reserves and resources, and a low-cost operating model, that will enable it to deliver sustainable returns to shareholders. The company is focused on the new Curragh mine plan which is targeted to increase the mine’s saleable production to 15 Mt by 2023.

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 Month 

Stock Recommendation: CRN undertook a number of steps to further cement its financial position and maintain financial flexibility. Currently, the stock is trading close to its 52-week low level of $0.580, proffering a decent opportunity for accumulation. On the technical analysis front, the stock of the company has a support level of ~A$0.7 and a resistance level of ~A$1.00. The company has a strong track record in making value accretive acquisitions and is targeting a leading position as a supplier of metallurgical coal to promote the growth of the steel sector globally.  We have valued the stock using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Thus, considering the company’s focus for FY20, its track record in making value accretive acquisitions, and  current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.82 per share, up by 11.565% on 14 September 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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