4 Energy and Resources' Sector Stocks - WPL, NST, STO, MIN

Stock’s Details

Woodside Petroleum Limited

Recent Developments Shaping up Future Performance: Woodside Petroleum Limited (ASX: WPL) is primarily engaged in hydrocarbon exploration, evaluation, development, production, and marketing.

Q2 2019 Highlights: During the quarter, the company generated sales revenue amounting to $738 million and production of 17.3 MMboe. Sales revenue and production were lower in comparison to the prior quarter values of $1,221 million and 21.7 MMboe, respectively. North West Shelf witnessed a strong LNG production performance during the quarter.            
   
   
Change in Production & Revenue (Source: Company Reports)

Key Developments: During the period, the company began offshore commissioning at Greater Enfield, with first oil production targeted in the coming weeks. The company also put forward Julimar-Brunello Phase 2 that will develop gas from the Julimar reservoir. Final investment decision regarding the same is targeted for H2 2019. In addition, the company commenced front-end engineering design (FEED) activities for Greater Western Flank Phase 3. Completion of FEED is targeted for Q1 2020. During the period,Diamond offshore was awarded Senegal drilling contract, with phased drilling targeted to begin in Q1 2021. The company also signed an agreement for the mid-term supply of around 1.5 million tonnes of LNG in the period to 2024.

Stock Recommendation: The stock generated negative returns of 0.03% and 0.99% over a period of 1 month and 3 months, respectively. In Q2 2019, the company witnessed a decline in production and revenue due to the major turnaround at Pluto LNG. However, the period saw strong LNG production from the North West Shelf and Wheatstone LNG. In addition, the company is expected to reap future benefits out of the recent business developments and contracts. In 1HFY19, the company had an EBITDA margin of 70.8%, which was higher than the industry median of 41.5%. The company’s net margin for the period stood at 30.6% as compared to the industry median of 19.5%. Currently, the stock is trading slightly below the average of 52 week high and low prices of around $34.35 with a PE multiple of 16.66x. Hence, considering the aforesaid factors and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $34.00, down 2.718% on 18 July 2019.


WPL Daily Chart (Source: Thomson Reuters)
 

Northern Star Resources Limited

Significant Progress at Pogo Operations:Northern Star Resources Limited (ASX: NST) is engaged in exploration, development, mining and processing of gold deposits. The company recently updated the exchange that it will release the quarterly report for the period ended 30 June 2019 on 30 July 2019.

March Quarter Highlights: During the quarter, gold sales totalled to 185,296 ounces at an AISC of A$1,369/oz. Sales from Australian operations stood at 149,069 ounces at an AISC of A$1,200/oz. US operations reported sales of 36,227 ounces at an AISC of A$2,062/oz. The company achieved significant progress in the Pogo operations during the quarter with production expected to rise in the coming quarters. Owing to the strong progress at Pogo, the company is expected to report record June quarter production of 235,000 – 260,000 ounces at an AISC in the range of A$1,075 – A$1,175/oz.


Production Performance (Source: Company Reports)

Cash and cash equivalents at the end of the quarter stood at A$288 million. The company generated an operating cash flow of A$63 million during the quarter, which is expected to rise significantly in the June quarter.

FY19 Guidance: The company provided FY19 production guidance in the range of 850,000 – 900,000 ounces. AISC guidance was revised from A$1,125 – A$1,225/oz to A$1,225 – A$1,275/oz. Australian operations are expected to generate production around the top end of the guidance of 600,000 – 640,000oz.

Stock Recommendation: Over a period of 1 year, the stock has generated returns of 68.79% whereas it gained ~41% in the last three months. Currently, the stock is trading close to its 52 weeks high level of $12.810 with a P/E multiple of 38.030x. Based on the high returns generated by the stock in short-term and current trading level, it can be presumed that majority of the positive factors have been discounted at the current level. Hence, we give an “Expensive” rating on the stock at the current market price of $12.710 per share (up 4.437% on 18 July 2019).


NST Daily Chart (Source: Thomson Reuters)
 

Santos Limited

Strong Cash Flows in June Quarter:Santos Limited (ASX: STO) is engaged in the exploration and development of hydrocarbons.

Key Performance Highlights: During the first half ended 30 June 2019, the company reported production of 37 mmboe, up 32% on prior corresponding period. Sales volume for the period totalled to 45.2 mmboe, up 19% on pcp. Revenue for the first half stood at ~$2 billion, up 18% on pcp.


Financial Highlights (Source: Company Reports)

Major Developments: The June quarter saw the signing of a binding letter of intent to acquire 14.3% interest in PRL 3, for the purpose of PNG LNG expansion. PRL 3 consists of the P’nyang natural gas field. A major oil and gas resource was identified in the Bedout Basin after successful appraisal of Dorado-2.

During the quarter, the company generated free cash flow of $300 million, with total free cash flow in the first half amounting to over $600 million.

Guidance Update: The company updated 2019 sales volume guidance from 88-98 mmboe to 90-97 mmboe. Production guidance for the year was revised from 71-78 mmboe to 73-77 mmboe. Unit production cost guidance was also lowered down from $7.50 – 8.00/boe to $7.25 – 7.75/boe.


2019 Guidance (Source: Company Reports)

Stock Recommendation: The stock generated returns of 2.03% and -0.98% over a period of 1 month and 3 months, respectively. The first half of 2019 was marked by record production volumes and sales revenues accompanied by strong free cash flows. While production in the second quarter was impacted by planned maintenance in the Cooper Basin and PNG LNG, the company expects a stronger production in the second half. For the six months ended 31 December 2018, the company had an EBITDA margin of 57.8%, higher than the industry median of 41.5%. Net margin for the period was reported at 26.6%, which is also higher than the industry median of 19.5%. Currently, the stock is trading close to its 52-week high level of $7.490 with a PE multiple of 16.45x. Given the backdrop of the above factors and current trading levels, we give a “Hold” recommendation on the stock at the current market price of $6.920, down 1.705% on 18 July 2019.


STO Daily Chart (Source: Thomson Reuters)

Mineral Resources Limited

A look at the recent update for MIN: Perth Based company, Mineral Resources Limited (ASX: MIN) has an engagement in Mining Services, Commodities, Profit-Share Projects, Innovation & Infrastructure, and Energy. The Company recently provided clarification over a newspaper article published by The Australian on June 25, 2019, regarding the airport at Wodgina which suggested that appropriate approvals for the airport were not in place, which has been regarded factually incorrect by the company. The Company stated that it has in place all the appropriate approvals to operate this airport and further notes that the Wodgina mine has in fact previously had an airport at site.

In another update, MIN announced a change in director’s interest where Peter Wade acquired 6,096 ordinary shares effective from July 11, 2019, taking the final holding to 334,752 shares.

March ’19 Quarter Key Highlights: MIN delivered 297kwmt (wet metric tonnes) of spodumene concentrate from Mt Marion YTD March 2019, and out of total 297k, 213kt tonnes were 6% graded, for which the company realised the price of A$1,328.13/wmt, and 84kt remained 4% graded for which MIN realised a price of A$791.78/wmt. The average cost per wet metric tonne shipped stood at A$596.80, including cost freight rate.


Production & Commodity Shipments Data (Source: Company Reports)

What to expect: MIN’s FY19 EBITDA at the consolidated group level has been anticipated to be in the range of $360 million to $390 million. This has been predicated considering various assumptions and major assumptions include the spodumene concentrate price of US$682.38 per tonne (6%), CFR 62% Fe of US$83.89 per tonne as well as the AUD/USD of 0.723 cents.

Meanwhile, the share price has fallen 10.01% in the past three months as at 17 July 2019and is trading below the average of 52 week high and low prices of around $15.25 with a PE multiple of 22.62x and an annual dividend yield of 3.59%. Hence, considering the aforesaid facts and current trading level, we recommend a “Hold” rating on the stock at the current market price of $14.740 (down 0.068% on July 18, 2019).


MIN Daily Chart (Source: Thomson Reuters)

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