Stocks’ Details

BHP Group Limited

 
Higher Iron Ore Prices & a Solid Operating Performance are Key Positives: BHP Group Limited (ASX: BHP) is mainly involved in the development, exploration, production and processing of minerals. The market capitalisation of the company stood at A$83.66 Bn as on 25 March 2020. BHP recently stated that Gary Goldberg, one of the Directors, has acquired 2,000 ADSs (representing 4,000 ordinary shares) for a consideration of US$ 41.63 per ADS.
 
H1FY20 Financial Highlights for the Period ended 31 December 2019: During the period, BHP’s underlying attributable profit soared 29% year over year and came in at US$5.2 billion. BHP’s total revenues for 1HFY20 came in at US$22,294 Mn, up 3% year over year. Underlying EBITDA for the period stood at US$12,084 million, a rise 15% year over year. During the period, the company’s net operating cash flow amounted to US$7.4 billion, with free cash flow of US$3.7 billion, suggesting higher iron ore prices and a robust operating performance. During the period, BHP declared an interim dividend amounting to 65 US cents per share, which indicated an increase of 18% year over year.
 

1HFY20 Key Highlights (Source: Company Reports)
 
Outlook: For FY20, BHP is anticipating total petroleum production in the range of 110 and 116 mmboe, and total copper production is expected to be between 1,705kt and 1,820 kt.  
 
Valuation Methodology:P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock is trading below the average of its 52-week low and high level of A$24.050 and A$42.33, respectively. The company has taken necessary measures to develop its exploration programs in petroleum and copper, with the third phase of the drilling program at Oak Dam in South Australia in progress. This drilling program is likely to be finished in Jun’20 quarter. We have valued the stock using P/E based relative valuation method, and for the purpose, we have taken peers such as Whitehaven Coal Ltd (ASX: WHC), Iluka Resources Ltd (ASX: ILU), and Newcrest Mining Ltd (ASX: NCM). We have arrived at a target price with an upside of lower double-digit (in percentage terms). Hence, considering the above factors, we give a “Buy” recommendation on the stock at the current market price of A$31.3 per share, up by 10.211% on 25 March 2020.

Oil Search Limited

 
Sneak Peek in OSH’s FY19 Key Highlights: Oil Search Limited (ASX: OSH) is engaged in the exploration, development and production of oil and gas resources. The company reported a net profit of US$312.4 million for FY19, indicating a decline of 8% year over year, on the back of the fall in worldwide energy prices. During the year, the company declared a total dividend of US 9.5 cents per share. This comprises of an interim and final dividend of US 5.0 and US 4.5 cents per share, respectively. Revenues for the period came in at US$1,585 million, up 3% year over year, aided by 11% increase in production, along with record performance by the PNG LNG Project. 
 

FY19 Key Metrics (Source: Company Reports)
 
Update on PNG operations due to COVID-19 Impact: Recently, Papua New Guinea’s National Executive Council stated the necessary measures in response to the first positive test of Coronavirus (COVID19) in PNG. These implementations incorporate announcing a State of Emergency for 14 days and banning the incoming international flights for 14 days, commencing from 24 March 2020.
 
What to Expect: For FY20, the company expects production to be in the ambit of 27.5 mmboe to 29.5 mmboe. OSH remains confident on developing three-train integrated Papua LNG and P’nyang expansion projects in PNG.
 
Valuation Methodology:P/CF Multiple Based Relative Valuation
 
P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: As per ASX, the stock of OSH is trading close to its 52-week low of $1.855.  Net margin of the company stood at 19.7% in FY19 as compared to the industry median of 11.6%. We have valued the stock using Price to cash flow based-relative valuation approach, and for the purpose, we have taken peers such as Woodside Petroleum Ltd (ASX: WPL), Senex Energy Ltd (ASX: SXY), Origin Energy Ltd (ASX: ORG), to name few, and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Therefore, considering the above factors, we give a “Buy” recommendation on the stock at the current market price of $2.140 per share, up by 4.902% on 25 March 2020.

IGO Limited

 
Robust Production & Commodity prices from Nova and Tropicana is a Key Positive:  IGO Limited (ASX: IGO) is involved in the exploration, development and mining of metals such as nickel, gold, copper, etc. In a recent update, the company announced that Debra Bakker, a Director of the company, has acquired 5,602 ordinary shares for a consideration of $19,999.14.
 
Business Update Pertaining to COVID-19 Impact: Recently, the company stated that it has taken the necessary measures to curb the impact of COVID-19 outbreak and ensures the health and wellbeing of its employees and contractors. In doing so, the company has implemented a range of services, which includes health screening, enhanced hygiene practices, travel restrictions, creating solid infection control systems and enable remote working activities where possible.
 
Other Recent Update: The company has also announced its plan to enter into an earn-in and joint venture deal including Encounter’s Yeneena Copper-Cobalt Project (“Yeneena”) in the Paterson Province of WA.
 
1H FY20 Key Highlights: The company recently issued its results for 1HFY20 and stated that it has achieved record NPAT amounting to $100 million. The company also experienced a rise of 84% in underlying free cash flows. This was aided by enhanced production and commodity prices from Nova and Tropicana.
 

1H FY20 Key Highlights (Source: Company Reports)
 
Outlook: The company expects cash costs to trend lower in the 2H FY20. Capital expenditure is forecasted to be in the range of $8 million-$10 million.
 
 Valuation Methodology:P/E Multiple Based Relative Valuation

P/E Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months
 
Stock Recommendation: The stock of IGO closed at $4.3 with a market capitalization of ~$2.23 billion as on 25 March 2020. The stock is currently quoting at the lower band of its 52-week trading range of $3.270 to $7.11.The stock has generated negative returns 39.49% and 19.62% in the last three months and one year, respectively. We have valued the stock using P/E based relative valuation method, and for the purpose, we have taken peers such Western Areas Ltd (ASX: WSA), Regis Resources Ltd (ASX: RRL), Northern Star Resources Ltd (ASX: NST), to name few, and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Therefore, considering the strong performance in 1HFY20 and favourable valuation, we give a “Buy” recommendation on the stock at the current market price of $4.30 per share, up 14.058% on 25 March 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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