NORTHERN STAR RESOURCES LTD

Northern Star Resources Ltd (ASX: NST) with a market cap of $5.37bn, is among the top 25 global gold producers with mines located in Western Australia and North America. During the September 2018 quarter, NST acquired the high grade Pogo underground Gold Mine. Meanwhile, NST made legally binding offers to acquire the 49% stake in the East Kundana JV (EKJV) it does not already own from Tribune Resources, Rand Mining and Rand Exploration NL for a cash consideration of A$150m.The group has milled a total of 651,015t of ore in the September 2018 quarter at 4.0gpt and 92.0% recovery for 76,524oz produced utilising the Company owned Kanowna Belle and Jubilee processing plants, and additional contracted third-party facilities. A fully franked final dividend of 5 cents per share was declared with a record date of 7 September 2018.

Financial Metrics:In FY 18, NST posted strong production and EBITDA figures. 4% increase in the group EBITDA toA$443M with net profit of A$194M was noted. Gold Sold (Jundee and Kalgoorlie Operations) grew by 21%. However, net margin showed slight drop to 20.1% in FY18 from 21.7% in FY17. ROE (return on equity) dropped to 27% in FY18 from 35.4% in FY17.

Technically,the scrip has remained on an uptrend from the start of the year 2018 and recorded higher highs with slight retracements in one or two months. The recent rejection to the upside indicates that the scrip is facing some headwinds.

The market cap of NST was recorded at $5.37bn, with P/E of 26.14x and beta below 1.0x.NST at these levels looks overvalued as compared to industry average, and we give an “Expensive” recommendation on NST at the current levels of $8.400.

OIL SEARCH LIMITED

Oil Search Limited (ASX: OSH) with a market cap of $11.17bn with 29% interest in PNG LNG Project reflected strong performance by the PNG LNG Project lately. Muruk 2 appraisal well located at the PNG Highlands was indicated for commencement of drilling from November 12, 2018. Further, Papua LNG JV participants have entered into a Memorandum of Understanding (MoU) with the Independent State of PNG for the development of the Papua LNG Project and this paves the path for a Gas Agreement that appropriately apportions project benefits and returns among stakeholders.

Healthy financial performance underpinned by liquidity:OSH posted healthy recovery in production since the recommencementof production post few natural calamities, with production levels recorded at 8.9MTPA in 3Q18. 81% growth in the total revenues to US$474.9m in 3Q18 was largely driven by 68% growth in LNG and gas sales and 31% growth in the liquid sales, together with 18% rise in LNG and gas prices and 5% rise in the price of condensate. Robust financial metrics were underpinned by strong liquidity of US$1.44bn. Production guidance for the complete FY18 has been upgraded to 25-26mmboe considering exceptional performance by PNG LNG project. Net margins showed significant improvement from 7.3% in FY17 to 20.9% and ROE jumped to 6.3% from 1.9% in FY17.

Technically, the scrip was in downtrend for the entire month of October given the oil price scenario. In the current month of November, the scrip however has showed some pull backs, but not very clear indication is shown on charts and no such reversal candles have been formed on the charts.Majorindicators like Relative strength index show slight positive divergence. The market capof OSH was recorded at $11.17bn, with P/E of 34.19x and beta below 1.0x. OSH has strong balance sheet and liquidity position; and cash generation from operations can support next phase of growth. Given the trading scenario and future prospects, wegive a “Hold” on OSH at the current levels of $7.34.

WorleyParsons Limited

WorleyParsons Limited(ASX: WOR) with a market cap of $6.67bn covers a wide range of activities right from the creation of new assets to sustenance and enhancement of the operating assets, in sectors such as resources. WorleyParsons advised that BP Oil New Zealand has entered into a joint venture with WOR, with WorleyParsons taking a 50% shareholding in the established entity New Zealand Oil Services (NZOSL).

Sound Financial metrics:Aggregated revenue grew by 8.5% up to $4749.2m in FY18, and underlying net profit after tax posted 39.1% rise up to $171.4m, the highest level in five years. Positive operating cash flow of $259.7m was recorded in FY18 in comparison to $78.9m in FY17. Gearing ratio was recorded at 23% below the targeted range. EBITDA margin showed significant improvement and recorded at 7.3% in FY18 as compared to 6.4% in FY17. Operating margins showed growth from 2.4% in FY17 to 5.2% in FY18. ROE jumped from 1.2% in FY17 to 7% in FY18.

Technically, the scrip was in downtrend for the entire month of October. In the current month of November, the scrip however has showed some pull backs, but not very clear indication is shown on charts and no such strong reversal candles have been formed on the charts. Major indicators like relative strength index show a hold signal in view of fundamentals wherein P/E of 62.1x looks a bit high.

Meanwhile, WOR will be acquiring Jacobs Energy, Chemicals and Resources division for a total enterprise value of A$4.6bn, and this acquisition will help WOR to map itself across varied sectors and mark itself as an established delivery provider in resources space.We give a “Hold” on WOR at the current levels of $13.44, down 7% on November 21, 2018.


Comparative Diluted Normalised EPS (Source: Thomson Reuters)
 
 

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