Origin Energy Limited

ORG Details

Credit Rating Upgraded to BBB stable / Baa2 stable:Origin Energy Limited (ASX: ORG) has an engagement in the operation of energy businesses including exploration and production of natural gas; electricity generation; wholesale and retail sale of electricity and gas; and sale of liquified natural gas. The Company recently announced about the resignation of its Company Secretary, Mr. Andrew Clarke, effective from June 30, 2019. Meanwhile, Helen Hardy will remain as Company Secretary of the company.

In its presentation at Macquarie Conference, Origin Energy highlighted that both of its businesses, i.e., energy markets and integrated gas are generating significant cashflows. Its credit rating has been upgraded to BBB stable and Baa2 (stable) from BBB- (positive) as per S&P's credit report and Baa3 (positive) as per Moody's credit report, respectively.

March’19 Quarter- Key Highlights: During the period, in the integrated gas segment, Australia Pacific LNG delivered its highest-ever quarterly revenue of $763.9 Mn (Origin Share), which is an increase of 53% as compared to the March’18 Quarter.In the energy markets segment, electricity sales volumes rose by 7% when compared to the previous quarter, mainly because of higher retail demand over summer, partially offset by the lower Business volumes. Natural gas sales fell by 10% as compared to the prior quarter, which was because of seasonal demand as well as the ending of short-term wholesale contracts in Queensland. This decline in sales got partly offset by more gas utilised in generation.


March’19 Quarter Performance (Source: Company Reports)

H1FY19 Financial Performance: ORG reported a statutory profit of $796 Mn as compared to a statutory loss of $136 Mn from continuing operations in H1FY18, which included a significant after-tax impairment charge of $360 Mn. Its underlying earnings before interest, tax, depreciation and amortization (EBITDA) was reported at $1,727 Mn, with an underlying profit of $592 Mn, reflecting reduced financing costs from lower debt & a lower average interest rate and higher oil linked revenues in Integrated Gas.

H1FY19 Financial Metrics (Source: Company Reports)

What to expect: As per the report, if market conditions do not materially change, and the regulatory and political environment does not adversely impact operations, then the company expects energy markets guidance to remain unchanged with the underlying earnings before interest, tax, depreciation and amortization (EBITDA) to be in the range of $1.5-$1.6 Bn. Australia Pacific LNG’s guidance is expected production range of 665 to 685 PJs (petajoules) and 250 to 300 operated wells drilled (100% share). A final dividend (fully franked) of 10 cents per share (or cps) is expected at Full Year 2019 results.

Stock Recommendation: Origin Energy’s share generated positive YTD return of 15.66%. Its ROE for H1FY19 stood at 6.5%, which is better than the industry median of 6.4%, which implies the company generated better returns for its shareholders than its peer group. On the valuation front, its EV/Sales and EV/EBITDA multiple for TTM stand at 1.3x and 5.8x, which are lower than the industry median of 4.1x and 10.8x, indicating the undervalued position at the current juncture.

Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $7.390 (up 1.094% on July 1, 2019).
 
 

AMP Limited

AMP Details

Trading at 52-week Lower Levels: AMP Limited (ASX: AMP) is a wealth management company with an expanding international investment management business and a growing retail banking business. The company recently announced dividend/distribution of AUD 1.13080000 on security ‘AMPPA – CAP NOTE 3-BBSW+5.10% PERP NON-CUM RED T-12-21’, with ex-date, record date and payment date on September 12, 13 and 23 of the year 2019, respectively.Total distribution rate for the period is 4.5356% p.a.

In another update, AMP acknowledges the announcement made by Australian Prudential Regulation Authority (ARPA) about the imposition of directions and additional conditions on the registrable superannuation entity (RSE) licences of its superannuation trustees.The Company has assured that it will fully implement the directions and additional conditions as per the regulatory requirements. Additionally, AMP reduced fees for its flagship investment platform MyNorth, benefitting superannuation members and investors.

Q1FY19 Key Highlights: The net cash outflows for Australian Wealth Management (AWM) stood at A$1.8 billion, including A$538 million of regular pension payments, reflected expected continued weakness in inflows and higher outflows in the post-Royal Commission environment. AMP Capital net external cash outflows came in at A$20 million reflected quarter-end liquidity management. Deposits of AMP Bank rose by A$218 million with the highest growth in retail deposits, and total loan book grew by A$127 million to A$20.1 billion.

FY18 Performance Highlights: Underlying profit for FY18 saw a decrease of 35% to $680 million from $1,040 million in FY17, reflecting the impact of businesses subject to sale, with the operating earnings of retained businesses, which is slightly weaker than FY17, driven by lower earnings for AWM (down 7%), offset by growth in AMP Capital (+7%) and AMP Bank (+6%).


FY2018 Total Segment Revenue Data (Source: Company Reports)

What to expect: AMP’s focus remains on transforming the business model in Australian Wealth Management to compete in a more efficient manner. The company already has taken actions to improve the outcome for customers which includes a decrease in fee on MyNorth products, which builds on the MySuper fee cuts, it delivered to clients in 2018. The management will continue to modernise its products to put AMP in a position where the group can win in the market.

Stock Recommendation: AMP’s share generated negative YTD return of 13.11% and is trading towards its 52 weeks lower level of $2.000. Hence, considering the aforesaid facts and current trading level, we put our wait and watch stance on the stock at the current market price of $2.140 (up 0.943% on July 1, 2019).
 
Boral Limited

BLD Details

BLD Signs Scoresby Property Agreement With Mirvac: Boral Limited (ASX: BLD) has an engagement in the manufacturing and supply of building and construction materials in Australia, the USA and Asia. The company recently announced that it has entered into a property development management deed with Mirvac in relation to its Scoresby site in Victoria. Under the agreement, Mirvac will manage the urban development of the 171-hectare site over a multi-decade period, including a proposed new housing community and substantial new parklands.

Boral expects to receive around $66 Mn of EBITDA by FY2026, including $3 Mn in FY2019. Additional significant earnings are projected from the development of Scoresby from FY2027 through to anticipated project completion in 2035. It is expected that Scoresby will be an important earnings contributor for Boral over the next 20 years.

H1FY19 (ended on December 31, 2019) Key Highlights:Total revenue increased by 1.8% to $2,990.3 Mn as compared to $2,937.0 Mn in H1FY18. The net profit attributable to members increased by 36.7% to $236.5 Mn as compared to $173.0 Mn in H1FY18.


H1FY19 Key Metrics (Source: Company Reports)

What to expect: As per the release, it is expected that Boral Australia will deliver broadly similar EBITDA this year as in FY2018, excluding property in both years, with property earnings to be around $30 Mn compared to $63 Mn in FY2018. Boral North America is expected to deliver EBITDA growth of around 15% in USD in FY2019 for the continuing operations, reflecting volume growth, further synergy delivery and operational improvements.

USG Boral is expected to deliver slightly lower profits in FY2019 as compared to FY2018. Across most businesses, higher volumes, together with business improvement initiatives will contribute to an expected second-half skew.

Stock Recommendation: The company’s stock is trading close to its 52 weeks low levels of $4.400, and therefore probability to bounce back increases. Its current ratio for H1FY19 stood at 1.84x, which is better than the industry median of 1.38x,which implies the company is in a better position to address its short-term obligations than its peer group. On the valuation front, its EV/Sales and Price/Cash Flow multiple for TTM stand at 1.4x and 7.1x, which are lower than the industry median of 1.9x and 8.0x, respectively, indicating undervalued position at the current juncture.

Hence, considering the aforesaid facts and current trading level, we recommend a “Buy” rating on the stock at the current market price of $5.140 (up 0.391% on July 1, 2019).


Comparative Price Chart (Source: Thomson Reuters)   

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