Stocks’ Details

Woodside Petroleum Ltd

Growth in Sales Volume and Production: Woodside Petroleum Ltd (ASX: WPL) is involved in the exploration, evaluation, development, production, and marketing of hydrocarbons. The market capitalisation of the company stood at $19.36 billion as on 11^th August 2020. Recently, the company released its Q2 FY20 activities report, wherein, it reported production of 25.9 MMboe, reflecting a rise of 7% from Q1 FY20. This took the half-year production to 50.1 MMboe, up 28% on 1H FY19. Sales volume for the quarter rose by 13% to 27.1 MMboe. The company achieved these production numbers in an uncertain period, which reflected the strength and resilience of its people and business. During the period, the company undertook appropriate responses to the combined impact of COVID-19 as well as lower commodity prices.

Production (Source: Company Reports)

Guidance: For 1H FY20, the company expects operating costs in the range of US$490 million – US$530 million. The company stated that its business is ready to generate long-term shareholder value. The company has scheduled to release its 1H FY20 results on 13^th August 2020.

Key Risks: The company’s business performance could be impacted by adverse demand in oil and gas. In addition, WPL’s financial strength and performance may be impacted by numerous factors like disruption in market dynamics and the ability to maintain a competitive advantage.

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

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

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

Stock Recommendation: The stock of WPL has corrected by 39.54% in the past six months, and is inclined towards its 52 weeks low price, offering a decent opportunity for accumulation. During Q2 FY20, the company started planting for the Greening Australia and Woodside Native Reforestation Project. Debt to equity of the company stood at 0.41x in FY19 as compared to the industry median of 0.48x. We have valued the stock using the price/cash flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peer such as Oil Search Ltd (ASX: OSH), Santos Ltd (ASX: STO), Origin Energy Ltd (ASX: ORG), etc. Therefore, considering the decent June quarter results, resilience of the company’s business, deleveraged balance sheet, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $20.400 per share, up by 0.542% on 11^th August 2020.

Oil Search Limited

A Look at June 2020 Quarter: Oil Search Limited (ASX: OSH) is engaged in the exploration, development and production of oil and gas resources. The market capitalisation of the company stood at $6.36 billion as on 11^th August 2020. During Q2 FY20, the company reported total production of 7.29 mmboe and total sales of 6.79 mmboe. The operated oil production was 14% higher than the first quarter, offset by a lower contribution from the Hides Gas-to-Electricity (GTE) Project. The total revenue generated from hydrocarbons stood at US$258.0 million, indicating a decline of 27% as a result of the material fall in oil prices and a higher proportion of LNG sold on the spot market.

Operational Performance (Source: Company Reports)

Successful Capital Raising: During the quarter ended June 2020, the company successfully raised equity of around US$700 million, which significantly bolstered the balance sheet and took the company’s total liquidity to US$1.67 billion.

Guidance for 1H FY20: For 1H FY20, the company expects to report unit production costs of around US$10.50 per boe against US$12.48 per boe in 2019. The expected fall in unit cost is mainly due to material reduction in work programs and associated manpower which were announced in March 2020. The company anticipates depreciation and amortisation charges in the range of US$12.00 – 13.00 per boe. OSH will release its 1H FY20 results on 25^th August 2020.

Key Risks: OSH’s business is heavily dependent on prevailing market prices for its products, primarily oil and gas. Any movement in the prices of these commodities may impact its revenue and cash flows. In addition, the business is also exposed to material business risks such as legislative and regulatory risk, political, community and other stakeholders, climate change risk and Joint venture risk.

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

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

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

Stock Recommendation: At the end of Q2 FY20, the company had available liquidity of US$1.67 billion, which comprises cash of US$831.4 million and undrawn credit facilities of US$835.6 million. We have valued the stock using the price/cash flow multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peer such as Beach Energy Ltd (ASX: BPT), Worley Ltd (ASX: WOR), Origin Energy Ltd (ASX: ORG), etc. Thus, in light of the growth in oil production, recent capital raising, available liquidity and guidance for 1H FY20, we give a “Buy” recommendation on the stock at the current market price of $3.060 per share on 11^th August 2020.

Coronado Global Resources Inc

Fall in Revenue during 1H FY20: Coronado Global Resources Inc (ASX: CRN) is largely involved in the development and operation of premium quality metallurgical coal mines in Queensland, Australia. The market capitalisation of the company stood at $807.04 million as on 11^th August 2020. Recently, the company released its results for the half-year ended 30^th June 2020, wherein it reported revenue amounting to US$713.7 million, down by 42.2% on pcp, due to lower sales volume and lower average realised met coal pricing as a result of softer market conditions and falling index pricing. During 1H FY20, CRN posted a net loss of US$123.2 million due to lower EBITDA and impairment charges of $63.1 million. OSH concluded an agreement with lenders of the Syndicated Facility Agreement (SFA) to waive the compliance with financial covenants until February 2021 in the month of May 2020 as a response to the uncertainty created by the global COVID-19 crisis. Due to declined production stemming from the temporary suspension of mining activities at the Curragh mine, coal sales volumes went down by 2.0 Mt.

Key Financials (Source: Company Reports)

Focus for FY20: The company’s focus for the remaining FY20 will revolve around meeting demands of its customers and capital preservation. The US operations of CRN are likely to produce saleable coal at a lower capacity to match market demand and reduce inventory levels in 2H FY20.

Key Risks: The company’s business is exposed to material business risk, which includes commodity price risk, which directly affects the realised price of the sale of coal products. Moreover, reduction in the global demand for metallurgical coal may adversely impact the company’s revenue. In addition, the business is also sensitive to operational risks like geological factors, equipment failure, schedule risk, reserves risk and cost pressure.

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 Months

Stock Recommendation: CRN undertook a number of steps to further cement its financial position and maintain financial flexibility. The stock of CRN has corrected 13.92% and 26.11% in the last one and three months, respectively. As a result, the stock is inclined towards its 52-week low levels of $0.780, offering decent opportunities to accumulate.  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). For the purpose, we have taken peers such as BlueScope Steel Ltd (ASX: BSL), Whitehaven Coal Ltd (ASX: WHC), Mount Gibson Iron Ltd (ASX: MGX). Thus, considering the focus for FY20, current trading levels, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.825 per share, down by 1.198% on 11^th August 2020.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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