Stocks’ Details

Iluka Resources Limited

FY19 Revenue Grew 2.4% on y-o-y basis: Iluka Resources Limited (ASX: ILU) is a mining and metal company, engaged in the processing of mineral sands. On 20^th February 2020, the company updated that community disruption has led to a temporary suspension of operations at Sierra Rutile. However, the company expects that the operations will resume in coming days.

FY19 Financial Highlights for the Period ended 31^st December 2019: ILU declared its full year results, wherein the company reported revenue from ordinary activities of $1,318 million, down 2.4% on y-o-y basis. Underlying group EBITDA stood at $616 million, up 2.6% on y-o-y basis. Mineral sands revenue stood at $1,193 million, down 4.1% on account of improvement in price realisation, which was offset by lower sales volumes. FY19 net loss after tax came in at $299.7 million, impacted due to $414 million write-down of Sierra Rutile assets and associated $162 million write-down of deferred tax asset. The business reported weighted average price of zircon at US$1,487/tonnes, up 10% on y-o-y basis.


Key FY19 Income Statement Highlights (Source: Company Reports)

Dividend Announcement: The company declared a fully franked dividend of $0.0800 per share with a payment date of 2^nd April 2020.

Outlook: For FY20, the company expects mixed performance, owing to the economic uncertainty across China stemming from the recent coronavirus outbreak. Lingering trade and political tensions are likely to impact the business sentiment in the short term which might impact the zircon demand.
 
 
Valuation Methodology: Price to Earnings Based Valuation

Price to Earnings Based Valuation (Source: Thomson Reuters)

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

Stock Recommendation: The stock of ILU is trading at $9.54 with a market capitalisation of $4.24 billion. The stock is trading at the upper band of its 52-week trading range of $6.74 to $11.19. The stock has generated positive returns of 7.97% and 16.36% in the last three months and six-months, respectively. Going forward, the company will progress on the pipeline of growth projects. The company will pursue capital discipline and will deploy its capital efficiently in order to deliver a satisfactory return. Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like Whitehaven Coal Ltd (ASX: WHC), South32 Ltd (ASX: S32) and BHP Group Ltd (ASX: BHP) and arrived at a target price of lower single-digit upside (in % terms). Hence, we recommend a “Hold” rating on the stock at the current market price of $9.54 per share, down 4.885% on 21^st February 2020.
 

OceanaGold Corporation

FY19 Gold Production Stood at 470,601 ounces: OceanaGold Corporation (ASX: OGC) is engaged in the exploration and development of Gold and has operations across Philippines, New Zealand and the United States.  

FY19 Business Highlights for the Period ended 31 December 2019: OGC announced its full-year results, wherein the company reported revenue of US$651.2 million, down 16% on y-o-y basis, due to lower sales volumes from Didipio, partially offset by a 7% higher average gold price received relative to FY18 and improved sales volumes from Haile. FY19 consolidated production consists of 470,601 ounces of gold and 10,255 tonnes of copper. The company reported a net profit of US$14.5 million. At the Waihi project, the Company progressed on the Martha Underground development with the execution of 1,300 metres of mine development during the fourth quarter. At the Haile project, the company completed construction of the pre-aeration thickener to support grind size optimization through the new circuit.


Key FY19 Operational Highlights (Source: Company Reports)

Guidance: For FY20, the business expects cash costs within the range of US$675 to US$725 per ounce sold. All-in Sustaining cost is expected within the range of US$1,075 - US$1,125 per ounce sold.

Valuation Methodology: Price to Earnings Based Valuation

Price to Earnings Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months, *1 USD = 1.52 AUD

Stock Recommendation: The stock of OGC is quoting at $2.850 with a market capitalisation of $1.82 billion. The stock is trading at the lower band of its 52-week trading range of $2.49 to $4.84. The company’s operations across United States and New Zealand delivered a strong performance in Q4FY19. The Haile operations continued to deliver improvement throughout the year while the company expects this momentum to continue in FY20 along with an approximate 25% increase in production and lower AISC. Considering the current trading levels and business prospects, we have valued the stock using Price to Earnings based relative valuation method. For the purpose, we have taken peers like Lynas Corporation Ltd (ASX: LYC), Northern Star Resources Ltd (ASX: NST), Newcrest Mining Ltd (ASX: NCM), etc., and arrived at a target price of lower double-digit upside (in % terms). Hence, we recommend a “Buy” rating on the stock at the current market price of $2.85 per share, down 2.73% on 21^st February 2020. 

Rio Tinto Limited

Expects FY20 Shipments Within the Range of 324 Mt to 334 Mt:  Rio Tinto Limited (ASX: RIO) is engaged in the production of copper, gold, iron ore, coal, aluminum, borates, titanium dioxide and other minerals. As per a recent update, the company’s iron ore operations situated in the Pilbara, Western Australia, are progressively resuming as the Tropical Cyclone Damien is passing. The company informed that the cyclone caused infrastructure damage across the Pilbara network, which includes the impact to access roads, electrical and communications infrastructure and accommodation. The business expects its shipments for FY20 within the range of 324 million tonnes and 334 million tonnes. The company is working with its customers to lower any disruption in supply.

FY19 Operational Highlights: RIO declared its operational updates, wherein the company reported Pilbara iron ore shipments of 327.4 Mt, down by 3% and Pilbara iron ore production of 326.7 Mt, a decline of 3% on y-o-y basis. FY19 Production of Aluminium, Mined copper and Titanium dioxide slag stood at 3,171 kt, 577.4 kt and 1,206 kt, respectively.

Guidance: As per the FY20 guidance, the company expects geopolitical tensions and oil price volatility to impact the performance, while iron ore shipments and bauxite production guidance are subject to weather and market conditions.


FY20 Production Guidance (Source: Company Reports)

Valuation Methodology: Price to Cash Flow Based Valuation

Price to Cash Flow Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months, *1 USD = 1.52 AUD

Stock Recommendation: The stock of RIO is quoting at $97.69 with a market capitalisation of 36.43bn billion. The stock is trading at the upper band of its 52-week trading range of $82.42 - $107.79. The stock has delivered positive returns of 14.34% and 8.19% in the last six months and one year, respectively. Considering the current trading levels and FY20 Guidance, we have valued the stock using Price to cash flow based relative valuation method. For the purpose, we have taken peers like BHP Group Ltd (ASX: BHP), Alumina Ltd (ASX: AWC), Iluka Resources Ltd (ASX: ILU), etc., and arrived at a target price of single digit downside (in % terms). Hence, we give an “Expensive” rating on the stock at the current market price of $97.69 per share, down 0.459% on 21^st February 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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