BHP Billiton Limited (ASX: BHP)

BHP Details
Capital discipline, debt reduction and shareholder returns: BHP Billiton aims to return a good amount of its free cash flow to its shareholders and has highlighted to benefit from its US shale assets by over $13.4 billion in value. The continued successful delivery through the Company’s roadmap to grow long-term shareholder value, together with stronger commodity prices, has underpinned a significant increase in return on capital employed and delivered a 30 per cent increase in BHP’s base value (in terms of planning forecasts) over the past two years. The Group has maximised operating cash flow as it lowered the costs through productivity and has been disciplined and transparent in capital allocation. The Group has identified new options to increase value and returns. Over the past two years, through its key value drivers, BHP has reduced unit costs by more than 15 per cent, has accelerated its technology and innovation program, progressed five high-return latent capacity projects and has made discoveries at four petroleum exploration prospects.


Return on capital Employed Performance (Source: Company Reports)

Alongside, it has reduced net debt by over US$10 billion, returned US$8 billion to shareholders and replenished its pipeline with new opportunities. This pipeline has the potential to add a further 40 per cent to the value of BHP, subject to its strict capital allocation processes. It continues to target a further US$2 billion in productivity gains by the end of the 2019 financial year, on top of the more than US$12 billion achieved since 2012. It would leverage its scale and simplicity to capitalise on the benefits of new technology to reinforce its position in safety and productivity and deliver a step-change in company performance. BHP is making good progress with the exit from its Onshore US business, with the quality of acreage, higher oil prices, a lower US corporate tax rate and positive results from recent well trials all contributing to encouraging interest from potential bidders. In last one year, the stock has risen by 40.85 per cent, followed by a rise of 11.91 per cent in last one month. The stock was up by 4.22 per cent in last five days and lifted up by 1.37 per cent as on 16 May 2018. We give a “Hold” recommendation at the current market price of $34.01 given the run-up and future potential.
 

BHP Daily Chart (Source: Thomson Reuters)
 

Qantas Airways Limited (ASX: QAN)

QAN Details

Foreign Persons holding relevant interest: Qantas is a relatively cheap stock that has positioned itself for growth and sustainable returns. Its latest quarterly update showed 7.5% rise in revenue despite higher fuel costs. The group’s return on invested capital has been over 20% for 12 months to December 2017. Recently, it was notified that according to The Qantas Sale Act 1992 (Cth) and the Qantas Constitution, foreign persons are permitted to hold relevant interests of no more than 49 per cent of the issued share capital of Qantas. As per ASX Listing Rule, the Company has to notify to the ASX when foreign persons hold relevant interests. So, Qantas notified to ASX that foreign entities hold relevant interest in Qantas equal to or exceeding 44 per cent and will update the ASX when that level of foreign ownership will change by more than 1 per cent or again will fall below 44 per cent. On 12 January 2018, Qantas advised the ASX that as at 29 December 2017 foreign persons potentially held relevant interests of 43.60 per cent in the issued share capital of Qantas. Based on the most recent reconciliation completed, as at 2 May 2018 foreign persons potentially held relevant interests in 44.13 per cent of the issued share capital of Qantas.


Fleet Age as at 31 December 2017 (Source: Company Reports)

The Group recently bought back 969,507 shares for a consideration of $6,062,715.07 from the market. It is worth noting that share price was up by 265.9 per cent in the last five years and climbed up by 31.59 per cent in one year. We give a “Buy” recommendation at the current price of $ 6.340, by looking at the overall scenario.
 

QAN Daily Chart (Source: Thomson Reuters)
 

Australia and New Zealand Banking Group Limited (ASX: ANZ)

ANZ Details

Diversified portfolio of cash and high-quality liquid securities: While the market was not very pleased with the outcomes of Royal Commission, Australia and New Zealand Banking Group Limited took investors by a surprise when it announced a healthy 2018 half-year result, which entailed 14% rise in statutory profit after tax, $3.49b of cash profit (up 4%), 119.4c of cash earnings per share (up 4%) and 80 cents of Interim Dividend per Share Fully Franked. ANZ also released its disclosure statement for the six months period ending on 31 March 2018. The Bank has sold residential mortgages to the NZ Branch with a net carrying value of NZ$3,516 million as at 31 March 2018 (30 September 2017: NZ$4,337 million). These assets qualify for derecognition as the Bank does not retain a continuing involvement in the transferred assets. On 17 January 2018, the Bank entered into an agreement to sell its 25% shareholding in Paymark to Ingenico Group. The carrying amount of the Banking Group’s investment in Paymark at 31 March 2018 was NZ$7 million and the asset was classified as held for sale. The transaction was subject to regulatory consents. On 13 April 2018, the Bank issued NZ$3,000 million of ordinary shares and paid ordinary dividends of NZ$3,000 million to the Immediate Parent Company. There were few changes in the Board since 30 September 2017 as John Judge retired as a Non-Executive Director on 31 December 2017 and Nigel Williams retired as a Non-Executive Director on 29 March 2018. As at 15 May 2018, the Bank was awarded with a credit rating of AA- (Outlook Stable) from Fitch.


Financial Position as on 31 March 2018 (Source: Company Reports)

APRA has confirmed that by 1 January 2021 no more than 5% of the Ultimate Parent Bank’s Level 1 Tier 1 capital base can comprise nonequity exposures to its New Zealand operations during ordinary times. The Bank also held unencumbered internal residential mortgage backed securities which would entitle the Banking Group to enter into repurchase transactions with a value of NZ$6,843 million at 31 March 2018. The Banking Group conducts insurance business through its subsidiary OnePath Life (NZ) Limited (OnePath Life). The Banking Group’s aggregate amount of insurance business comprises the total assets of OnePath Life of NZ$984 million, which is 0.6% of the total consolidated assets of the Banking Group. The Group recently bought back 722,987 shares from the market for a consideration of $20,047.128. The stock has been falling since the start of the year that is by 2.94 per cent, followed by a rise of 3.82 per cent in last one month. We recommend to “Buy” the stock at the current market price of $27.77.
 

ANZ Daily Chart (Source: Thomson Reuters)
 

Woodside Petroleum Limited (ASX:WPL)

WPL Details

Looking for opportunities to grow its portfolio: Over the past decade, the oil price has varied from a high of $145 to a low of $30 per barrel. Despite these fluctuations and dramatic shifts in global financial conditions, Woodside has remained profitable over that period. In 2017, conditions improved as oil prices stabilised and then firmed, and in the second half of the year, LNG spot prices increased significantly. At the same time as launching of its rights issue, the Group also announced that it was increasing its stake in the Scarborough resource, giving Woodside greater control, alignment and certainty over its development. The successful development of the Pluto Project was one highlight and it is pleasing that the Pluto facility will now provide the avenue for development of other gas resources. WPL maintained 80 per cent dividend pay-out ratio, paying a fully-franked dividend of 98 cents per share, up from 83 cents the previous year.


Revenue Performance for Q1FY2018 (Source: Company Reports)

Its net profit after tax for FY17 increased by 18 per cent to more than $1 billion, driven by higher prices for its products and sustained low production costs. In 2017, the Group generated free cash flow of $832 million, while maintaining investment in growth projects and developments. These strong financial results supported an 18 per cent increase in shareholder distributions, to 98 cents per share. Peter John Coleman, having an indirect interest in the Company acquired 1,182 shares. In last three months, the stock climbed up by 17.05 per cent and by 9.8 per cent in last one month. The stock was up by 3.59 per cent in last five days, followed by a jump of 1.6 per cent as on 16 May 2018. We give a “Hold” recommendation at the current market price of $34.06.
 

WPL Daily Chart (Source: Thomson Reuters)

 
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