Stocks’ Details
 

Oz Minerals Limited

Strong Operating and Financial Performance: Oz Minerals Limited (ASX: OZL) is an Australian based modern mining company with a focus on copper. As on 30 March 2020, the market capitalization of the company stood at $2.3 billion. During FY19, the company reported strong operating and financial performance, creating a solid foundation to progress in its growth strategy. During the year, the company reported Net Profit After Tax of $164 million on net revenue of $1,107 million and Underlying EBITDA of $463 million. OZL also witnessed strong operating cash flows of $511 million with a net cash balance of $134 million. The decent financial and operational performance enabled the Board to declare a fully franked final dividend of 15 cents per share, bringing the total dividend for FY19 to 23 cents per share. 


1H20 Financial Highlights (Source: Company Reports)

Future Expectations and Guidance: The company has provided guidance for FY20 and expects to produce 83,000-100,000 tonnes of copper and 207,000-234,000 tonnes of gold. It also expects All-in sustaining costs be between US$135-150/lb^2. The company has a net cash positive position and $300 million revolving debt facility, providing sufficient liquidity in the current fluid environment.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Based Approach (Source: Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of OZL is trading close to its 52-weeks’ low level of $5.830, proffering a decent opportunity for accumulation. The company has stated that there is no impact of COVID on production. During FY19, EBITDA margin of the company stood at 31.4%, higher than the industry median of 29.1%. In the same time span, net margin of the company was 14.8% as compared to the industry median of 10.8%. Considering the trading levels, higher margins and decent future expectations, 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 Newcrest Mining Ltd (ASX: NCM), Fortescue Metals Group Ltd (ASX: FMG), etc. as peers. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $7.220, up by 1.834% on 30 March 2020.

BHP Group Limited

Solid Operational Performance and Strong Earnings: BHP Group Limited (ASX: BHP) is engaged in the exploration, production and processing of minerals and hydrocarbon. As on 30 March 2020, the market capitalization of the company stood at $85.52 billion. During 1H20, the company reported strong earnings with a growth of 15% in Underlying EBITDA to US$12.1 billion and an increase of 29% in Underlying attributable profit to US$5.2 billion. This resulted in an increase of 46% in Underlying basic earnings per share to 102.6 US cents.


1H20 Financial Highlights (Source: Company Reports)

Growth Opportunities and Expectations: The company expects uncertainty in demand in the short term but sustainable productivity in the medium term. BHP is steeper cost curves in the medium term and expects capital and exploration expenditure of less than US$8 billion in FY20. The company expects to produce 110 – 116 MMboe of petroleum and is likely to produce copper in between 1,705 – 1,820kt. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Approach (Source: Thomson Reuters), *1USD=1.63AUD

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

Stock Recommendation: As per ASX, the stock of BHP is trading close to its 52-weeks’ low level of $24.05, proffering a decent opportunity for the investors to enter the market. During 1H20, EBITDA margin of the company stood at 50.6%, higher than the industry median of 36.2%. In the same time span, ROE of the company was 10.2% as compared to the industry median of 4.7%. Considering the trading levels, higher margins and decent growth opportunities, 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 Fortescue Metals Group Ltd (ASX: FMG), Rio Tinto Ltd (ASX: RIO), etc. as peers. Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $30.20, up by 4.03% on 30 March 2020.

Macmahon Holdings Limited

Decent Increase in Revenue and Profit: Macmahon Holdings Limited (ASX: MAH) is engaged in contract mining, civil engineering and quarrying. As on 30 March 2020, the market capitalization of the company stood at $355.57 million. The company has recently released its interim results for the period ending 31 December 2019 wherein it reported an increase of 27% in net revenue to $686.7 million and a growth of 28% in Underlying EBITDA to $114 million. This resulted in an increase of 22% in NPAT of $28.7 million. The decent financial performance of the company enabled the Board to declare a partially franked interim dividend of 0.25 cents per share which is to be paid on 2 April 2020.  


1H20 Financial Highlights (Source: Company Reports)

Future Guidance: The company has provided guidance for FY20 and expects revenue to be in between the range of $1.3 billion to $1.4 billion and EBIT to be between $85 million to $95 million. The company is likely to have secured work of $1.3 billion and an order book of $4.5 billion. MAH is prioritizing to maintain a strong balance sheet and will ensure liquidity and gearing with regard to revenue visibility and outlook. 

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

EV/EBITDA Multiple Approach (Source: Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of MAH is trading close to its 52-weeks’ low level of $0.140, proffering a decent opportunity for accumulation. During 1H20, gross margin of the company stood at 56.8%, higher than the industry median of 45.6%. In the same time span, ROE of the company was 6.3% as compared to the industry median of 4.7%. Considering the current trading levels, higher margins and positive outlook, we have valued the stock using an EV/EBITDA multiple based relation valuation method and arrived at a target upside of lower double-digit (in percentage terms). For the said purposes, we have considered NRW Holdings Ltd (ASX: NWH), MACA Ltd (ASX: MLD), etc. as peers. Hence, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.165 on 30 March 2020. 

 
Comparative Price Chart (Source: Thomson Reuters)

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