Stocks’ Details
 

Oil Search Limited

Appointment of Managing Director: Oil Search Limited (ASX: OSH) is involved in the exploration, development and production of oil and gas resources. The market capitalisation of the company stood at A$8.45 Bn as on 3^rd March 2020. Recently, it has appointed Dr Keiran Wulff on the role of Managing Director. The company’s net profit for the full year ended 31^st December 2019 stood at US$312.4 million, reflecting a fall of 8%. This decline is primarily due to a decrease of 11% in realised oil and condensate prices and 5% lower realised LNG and gas price, a rise of 27% in depreciation and amortisation charges and fall of 29% in exploration costs expensed, indicating lower exploration spend in PNG.

During the year, the Board of the company declared a total dividend of US 9.5 cents per share. This comprises of interim and final dividend of US 5.0 and US 4.5 cents per share, respectively.


Full Year Results (Source: Company Reports)

Guidance for Upcoming Year: For 2020, the company is committed for the development of the three-train integrated Papua LNG and P’nyang expansion projects in PNG. It anticipates production for 2020 in the range of 27.5 mmboe to 29.5 mmboe.

Valuation Methodology: P/CF Based Valuation
 

P/CF Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Net margin of the company stood at 19.7% in FY19 as compared to the industry median of 12.5%. This reflects the company has decent capabilities to convert its topline into the bottom against the broader industry. 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) and arrived at a target price, which is offering an upside of lower double-digit (in percentage terms). Therefore, in the light of decent liquidity position and returns to the shareholders, we give a “Buy” recommendation on the stock at the current market price of A$5.430 per share, down by 1.986% on 3^rd March 2020.

Worley Limited

Robust Rise in Aggregate Revenue: Worley Limited (ASX: WOR) provides professional services to help its customers in relation to changing needs for energy, chemicals and resources. The market capitalisation of the company stood at $6.59 Bn as on 3^rd March 2020. Recently, Director Martin Lee Parkinson has made a change to holdings in the company by acquiring 7,000 ordinary shares at the consideration of $13.4918 average per share. 

Improved conditions of the market and inclusion of the business acquired from Jacobs (ECR) have resulted in an increase of 134% in aggregated revenue to $5,998 million for 1H FY20. The company closed the period with a strong balance sheet comprising an underlying operating cash flow of $277 million with a rise from $21 million for pcp.

The company has declared unfranked interim dividend amounting to 25 cps. The company will be paying the said dividend on 25^th March 2020 with a record date of 28^th February 2020.


Revenue Growth (Source: Company Reports)

Increase in Cost Synergy Target:The company has increased its cost synergy targets to $150 million from $130 million to a current level of $175 million. It anticipates these synergies to be delivered over two and a half years.

Valuation Methodology: P/BV Multiple Based Valuation

P/BV Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Debt to equity of the company stood at 0.36x in FY19 as compared to 0.45x of FY18. Net debt to EBITDA stood 2.0x with gearing at 21.3% during 1H FY20. During the span of six months, the stock of Worley provided returns of 5.24%. We have valued the stock using the price to book value based relative valuation method and arrived at a target price, which is offering an upside of high single-digit (in percentage terms). Thus, considering the strong and deleveraged balance sheet, robust growth in revenue and valuation, we give a “Buy” recommendation on the stock at the current market price of $12.740 per share, up by 0.632% on 3^rd March 2020.   

Liquefied Natural Gas Limited

Bid Implementation Agreement with LNG9 PTE LTD: Liquefied Natural Gas Limited (ASX: LNG) is the 100% owner of Magnolia LNG LLC, Bear Head LNG Corporation Inc, Bear Paw Pipeline Corporation Inc and LNG Technology LLC. During 1HFY20, the company reported a decline of 84% in revenue from ordinary activities, which stood at $70,000. The cash position of the company stood at $8.3 million with no debt at the close of December 2019.

LNG has entered into a Bid Implementation Agreement with LNG9 PTE LTD (LNG9). Under the agreement, LNG9 PTE LTD will acquire all issued ordinary shares of LNG via an off-market takeover bid at the offer price of around A$0.198 per LNGL share. The shareholders of LNG would be getting US$0.13 in cash per share. 


Financial Metrics (Source: Company Reports)

Focus to Increase Liquidity Position:The focus of the company revolves around signing binding offtake agreements with investment-grade counterparties in order to allow an FID on its projects and increasing its liquidity position for sustaining its operation.

Stock Recommendation: Over the span of the last few years, the company experienced a decent improvement in its key margins.Current ratio of the company stood at 6.37x in FY19 as compared to the industry median of 1.17x. This implies that the company is in a decent position to address its short-term obligations against the broader industry. The stock of Liquefied Natural Gas Limited is trading at a price to book multiple of 2.9x against the industry average (Energy) of 6.4x on TTM basis. Since the management of the company have already mentioned that taking the offer from LNG9 PTE LTD (LNG9) is in their best interest citing the perspective of Independent expert, investors may consider voting in favor of the aforesaid proposal.

Karoon Energy Ltd

Completed Funding Plans: Karoon Energy Ltd (ASX: KAR) is engaged in the exploration of oil and gas. The market capitalisation of the company stood at $481.1 Mn as on 3^rd March 2020. Macquarie Group Limited and its controlled bodies corporate has become an initial substantial holder in the company on 27^th February 2020 with the voting power of 5.31%. The company recently completed its funding plans with respect to the acquisition of a 100% operating interest in Concession BM-S-40. The company has also entered a fully underwritten senior term loan facility with ING Bank N.V for up to US$275 million. As at 31^st December 2019, the cash balance of the company stood at A$496.5 million.


Cash Position at December 2019 Quarter (Source: Company Reports)

Focused on Increasing Production: The company is resourced well to take over the operations of the Baúna asset. KAR anticipates that it would be able to increase production to more than 30,000 bopd with the help of well-focused workovers, installation and/or replacement of up to 4 ESPs, as well as the tie-in of the Patola oil discovery.

Stock Recommendation: Current ratio of the company stood at 41.65x in FY19 versus 1.17x of the industry median, reflecting a decent position of addressing short-term obligations against the peer group. Debt to equity of the company stood at nil in FY19 against 0.49x of the industry median. KAR has EV to sales multiple of 0.7x as compared to the industry median (Oil & Gas) of 12.6x on TTM basis.  The stock is trading at a price to book multiple of 0.9x against the industry median (Oil & Gas) of 1.1x on TTM basis. Hence, considering the stabilised balance sheet, decent liquidity levels and funding plans for acquisition, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.855 per share, down by 1.724% on 3^rd March 2020.

 
Comparative Price Chart (Source: Thomson Reuters)

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