Western Areas Limited

WSA Details

High-Grade Nickel Intercepted at the Radar Prospect: Western Areas Limited (ASX: WSA) is involved in mining, processing and exploration of high-grade nickel mines and other base metals. It is also involved in sale of nickel sulphide concentrate. Recently, the company informed the market that the laboratory assays have confirmed thick intercept of high-grade nickel-copper sulphides in discovery hole for the Radar prospect, St George’s flagship Mt Alexander project, located in the north-eastern Goldfields. Moreover, more than 10.5 km of the belt remains underexplored with strong targets emerging at Fish hook and West End. It is expected that the exploration success would add substantial volumes to a potential resource at Mt Alexander.

FY19 Key Highlights for the year ended June 30, 2019:Sales revenue for the period was reported at $268.7 Mn, an increase of ~8.22% as compared to the previous year. Net profit after tax for the period was reported at $14.2 Mn, an increase of 20.34% on previous year. The company boasts for its strong balance sheet with no debt and a cash balance of $144.3 Mn, which is expected to help the company to invest in the Odysseus mine development.Its operating cash flow for the period was reported at $98.3 Mn, alongside significant capital, feasibility and exploration expenditure worth $99.3 Mn, representing substantial investments in the future of Western Areas. The Board of Directors declared a fully franked dividend of 2 cents per share, which represents a payout ratio of around 38% of FY19 NPAT. The record date and payment dates were on September 13, 2019 and October 4, 2019, respectively.


FY19 Key Metrics (Source: Company Reports)

What to expect:As per the release, the new discovery at the Radar prospect along with a strong rally in the nickel price over the recent months is likely to be very favourable for the project economics of a potential development at Mt Alexander.

FY20 Guidance:Nickel tonnes in Concentrate Production has been estimated to be between 21,000 to 22,000 tonnes; Unit Cash Cost of Production (Nickel in Concentrate) has been estimated between $2.90/Ib to $3.30/Ib; Mine Development cost has been estimated in the range of $33 Mn to $38 Mn; Capital & Growth cost has been estimated between $7 Mn to $10 Mn; Odysseus Development cost has been estimated between $75 Mn to $85 Mn; and Exploration cost has been estimated in the range of $14 Mn to $17 Mn.

Stock Recommendation:WSA’s share generated a positive YTD return of 65.26%. Its net margin for FY19 stood at 5.3%, better than FY18 result of 4.8%. Its ROE improved from 2.5% in FY18 to 2.9% in FY19. Its current ratio for FY19 stood at 3.55x, better than the industry median of 1.75x, which implies that the company is in a better position to address its short-term obligations. Its cash cycle for FY19 stood at 38.3 days, lower than the industry median of 46.2 days, which implies that the company is efficiently managing its asset-liability balances. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $3.060, down 2.548% on October 11, 2019.

 
WSA Daily Technical Chart (Source: Thomson Reuters)
 

Orora Limited

ORA Details

Sale of Australasian Fibre Business to Nippon Paper for $1,720 Mn: Orora Limited (ASX: ORA) is involved in providing an extensive range of tailored packaging and visual communications solutions. The packaging products include glass bottles, beverage cans, corrugated boxes, recycled paper, multi-walled paper bags and point of purchase displays. Recently, the company announced the sale of its Australasian Fibre business to Nippon Paper Industries Co., Limited, for an enterprise value of $1,720 Mn. The transaction includes the company’s Fibre packaging, paper & recycling, cartons, bags, functional coatings and Orora WRS packaging distribution businesses in Australia and New Zealand. Net proceeds after tax and costs are expected to be around $1,550 Mn. Net gain on sale (to be recognised as a significant item) after tax and transaction related costs has been estimated at $225 Mn. The company will continue to focus on its market leading Australasian beverage and its North American Businesses, which have attractive outlooks.

FY19 Key Highlights for the period ended June 30, 2019:Sales revenue for the period increased by 12.1% to $4,761.5 Mn. This was driven by an increase in revenue of Orora Packaging Solutions (OPS) by ~14.1% in local currency terms, primarily from the acquisition of Bronco and Pollock completed during H1FY19.

EBITDA for the period increased by 5.1% to $468.1 Mn. Statutory net profit after tax (NPAT) for the period was reported at $161.2 Mn and earnings per share (EPS) was reported at 13.4 cents per share. Underlying NPAT before significant items for the period increased by 4% to $217 Mn, and underlying EPS was reported at 18 cps. The Board of Directors declared a final ordinary dividend (30% franked) of 6.5 cps, with record date and payment date on September 17, 2019 and October 21, 2019, respectively.


FY19 Key Metrics (Source: Company Reports)

What to expect:As per the release, preparation work has continued at Gawler for the rebuild of the second furnace (G2), which is scheduled to take place between February and April 2020. The total cost of the rebuild is $50 Mn, with majority to be spent in FY20. The second forming line off G2 is expected to be upgraded for an estimated cost of $10 Mn, which will add ~10 Mn bottles of annual capacity. The benefits are expected to flow from FY21.
The Orora global innovation initiative is expected to continue to be accessed by the Australasian business to enhance the value proposition and improve productivity and drive earnings growth. Under Orora packaging solutions, ERP system rollout has been completed and the transition costs are progressively being removed, which is expected to positively impact FY20. Orora Visual financial business continues its integration journey and further leverages collaboration and drives efficiencies across all sites to drive towards the targeted returns.

Stock Recommendation:ORS’s share generated a positive YTD return of 2.64%. Its current ratio for FY19 stood at 1.25x, better than the FY18 results of 1.20x, which implies that the company’s liquidity position has improved over the previous year. Its dividend yield stands at 4.18%, better than the industry median of 3.8%. The Company’s top-line and bottom-line for FY19 have improved over the previous year. Moreover, its ongoing projects and investments for future development are expected to help the company in delivering a sustainable return for its shareholders in the coming times. Hence, considering the aforesaid facts and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $3.040, down 2.251% on October 11, 2019.

 
 ORA Daily Technical Chart (Source: Thomson Reuters)

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