Stocks’ Details
 

Orocobre Limited

Update on Proposal to Acquire Advantage Lithium Corp: Orocobre Limited (ASX: ORE) is a mineral exploration and production company with a focus on developing Lithium/Potash resources in Argentina. As on 18 March 2020, the market capitalization of the company stood at $620.89 million. The company has stated that it doesn’t have the approval of Advantage Lithium Corp’s shareholders for the acquisition of the entity. Advantage will have its special meeting on 14 April 2020 at which approval will be sought in order to complete the transaction through a statutory plan of arrangement. The company also stated that a special committee of the Advantage Board had a favourable recommendation pursuant to the arrangement.

The company has recently released its interim results for the period ending 31 December 2019 wherein it reported an increase of 10% in the production of lithium carbonate to 6,679 tonnes. The company also reported positive results from Olaroz Lithium Facility with revenue of US$39.4 million on sales of 6,395 tonnes of lithium carbonate. At the end of the period, the company reported a cash balance of US$195 million.


1H20 Operational Highlights (Source: Company Reports)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation
 

EV/Sales Multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months, 1USD=1.66 AUD

Stock Recommendation: As per ASX, the stock of ORE is trading close to its 52-weeks’ low level of $1.835, proffering a decent opportunity for accumulation. During 1H20, gross margin of the company witnessed a YoY increase and stood at 33.6%, up from 28.8% in 1H19. In the same time span, current ratio of the company stood at 2.6x, higher than the industry median of 1.85x. Considering the trading levels, higher margins and decent operational performance, we have valued the stock using EV/Sales multiple approach and have arrived at a target price with an upside of lower double-digit (in percentage terms). For the said purposes, we have considered Pilbara Minerals Ltd (ASX: PLS), Evolution Mining Ltd (ASX: EVN) and Gold Road Resources Ltd (ASX: GOR) as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $2.190, down by 7.595% on 18 March 2020, owing to its update on the acquisition of Advantage Lithium Corp. 

Woodside Petroleum Ltd

Strong Base for Business Performance: Woodside Petroleum Ltd (ASX: WPL) is engaged in the development and exploration of gas, oil and condensate reserves. As on 18 March 2020, the market capitalization of the company stood at $17.81 billion. The company has recently released its full-year results for the period ending 31 December 2019, wherein it reported strong revenue and operating cashflow. During FY19, revenue of the company stood at US$4,873 million and net profit after tax was US$343 million. The company also reported positive operating cashflow of US$3,305 million. WPL has a strong base for business performance with an annual production of 89.6 MMboe with a gross margin of US$24 per boe. 


FY19 Financial Performance (Source: Company Reports)

Future Expectations and Guidance: The company has a strong business base with high cashflows and decent margins. WPL has provided guidance for FY20 and expects to produce 97-103 MMboe with low exploration spend. The company will invest in new energy and will expand its carbon offset business. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months, *1USD=1.66 AUD

Stock Recommendation: As per ASX, the stock of WPL has hit its 52-weeks’ low level of $17.230, proffering good opportunity for the investors to enter the market. During FY19, gross margin of the company was in line with the industry median and stood at 44%. In the same time span, EBITDA margin of the company was 71.8%, higher than the industry median of 32.2%. Considering the trading levels, higher EBITDA margin and modest outlook, we have valued the stock using EV/Sales based relative valuation approach and have arrived at a target price with an upside of lower double-digit (in percentage terms). For the said purposes, we have considered Oil Search Ltd (ASX: OSH), Senex Energy Ltd (ASX: SXY) and Cooper Energy Ltd (ASX: COE) as peers. Hence, we recommend a “Buy” rating on the stock at the current market price of $17.230, down by 8.836% on 18 March 2020. 

OceanaGold Corporation

OGC Enters into $78.5 Million Gold Prepayment Arrangement: OceanaGold Corporation (ASX: OGC) is a multinational, mid-tier gold mining company with significant global operating, development and exploration experience. As on 18 March 2020, the market capitalization of the company stood at $1.12 billion. The company has recently entered a forward gold sale arrangement with members of the company’s current banking group whereby it will receive a pre-payment of $78.5 million in exchange for delivering 48,000 gold ounces between September and December 2020. The company has also announced that Mr. Mick Wilkes is stepping down from the position of Chief Executive Officer.
The company has recently released its full-year results for the period ending 31 December 2019 wherein it reported gold production of 470.6 koz and gold sales of 448.4 koz. In the same time span, the company reported revenue of US$651.2 million and adjusted net profit of US$32.1 million.


FY19 Operational and Financial Results (Source: Company Reports)

Growth Opportunities and Future Guidance: The company has provided guidance for FY20 and expects All-in Sustaining Costs in the range of US$1,075 to US$1,125 per oz sold. OGC also expects to make a capital investment of USD 220 – 255 million and will focus on delivering value in Waihi, Didipio, Haile, Martha and Golden Point. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Approach (Source: Thomson Reuters), 1USD=1.66 AUD

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months,

Stock Recommendation: As per ASX, the stock of OGC is trading very close to its 52-weeks’ low level of $1.710, proffering a decent opportunity for accumulation. During FY19, gross margin of the company stood at 44.6%, higher than the industry median of 41.1%. In the same time span, EBITDA margin of the company was 35.5% as compared to the industry median of 29.1%. Considering the trading levels, higher margins and decent outlook, we have valued the stock using EV/Sales valuation approach and have arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered St Barbara Ltd (ASX: SBM), IGO Ltd (ASX: IGO) and Resolute Mining Ltd (ASX: RSG) as peers. Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.910, up by 6.111% on 18 March 2020. 

Sandfire Resources Limited

Black Butte Copper Project EIS Completion: Sandfire Resources Limited (ASX: SFR) is engaged in the exploration of gold and base metals. As on 18 March 2020, the market capitalization of the company stood at $646.25 million. The company has announced that its 85% owned Black Butte Copper Project has achieved two key milestones, first, the release of Final Environmental Impact Statement and second, the issuance of Preliminary Determination by the Department of Natural Resources to modify their irrigation water rights to include leasing water for mitigation for the Black Butte Copper Project.

The company has reported its interim results for the period ending 31 December 2019 wherein it reported revenue of $313.1 million and strong cashflow from operating activities of $109.1 million. In the same time span, net profit of the company stood at $33.3 million, with EPS of 20.6 cents per share.


1H20 Financial Highlights (Source: Thomson Reuters)

Growth Opportunities and Future Expectations: The company expects increased production at a lower cost and a strong pipeline of opportunities. SFR has given guidance for FY20 and expects to produce 70-72kt of contained copper and 38-40koz of contained gold.

Stock Recommendation: As per ASX, the stock of SFR is trading close to its 52-weeks’ low level of $3.020, which is an excellent opportunity for the investors to enter the market. During 1H20, gross margin of the company stood at 62.6%, higher than the industry median of 45.6%. In the same time span, EBITDA margin of the company was 45.6% as compared to the industry median of 36.2%. On the TTM basis, the stock is trading at a price to cashflow multiple of 2.4x, lower than the industry average (Basic Materials) of 8.5x. Considering the trading levels, higher margins and growth opportunities, we recommend a “Buy” rating on the stock at the current market price of $3.020, down by 16.804% on 18 March 2020.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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