BHP Group Limited

BHP Details

Board Strengthened via New Appointments: BHP Group Limited (ASX: BHP) is a leading resource company, involved in the mineral exploration, production and processing of commodities particularly coal, iron ore, copper and manganese ore. On 14 November 2019, BHP announced the appointment of highly experienced mining industry veteran, Mike Henry, as the new CEO and Executive Director, effective from 1 January 2020. Mike Henry’s deep operational and commercial experience in the global mining and petroleum industry is expected to deliver a culture of high performance and returns for BHP. On 4 December 2019, the company announced the appointment of highly experienced mining executive, Gary Goldberg, as an independent Non-Executive Director, reflecting the Board’s commitment to a structured and rigorous approach to Board succession planning.

Strong FY19 Performance:During FY19 (year ended 30 June 2019), BHP delivered record cash returns to its shareholders, driven by the higher prices and a solid underlying performance, contributing EBITDA of USD 23 billion at a margin of 53% and strong operating cash flows. Over the past few years, the company has been consistently generating strong operating cash flows. In FY19, the company delivered an operating cash flow of USD 17 billion. The minimum dividend payment for the second half of FY19 was 53 US cents per share, however, after recognising the importance of cash returns to shareholders, the Board decided to pay an additional amount of 25 US cents per share, taking the final dividend to a record 78 US cents per share. By the end of FY19, BHP had a strong balance sheet as well as a simplified portfolio of world-class assets.

Strong entry into FY2020:At the recently held Annual general Meeting (AGM), BHP informed that it has entered FY20 with a positive outlook for its business. The company expects a USD 3.8 billion increase in net debt over FY2020, mainly due to the application of IFRS 16 ‘Leases’, new leases commencing in the year and a change in the company’s definition of net debt to include fair value of derivatives related to net debt. In the first quarter of FY2020 (quarter ending 30 September 2019), the group production declined slightly due to the expected impacts of planned maintenance and natural field decline in Petroleum. Despite this, the group has not changed its guidance and expects to deliver slightly higher volumes than FY19, demonstrating its strong command over operations.


September Quarter Operational Highlights (Source: Company Reports)
Recent Update:BHP Petroleum, one of the businesses of BHP which has 90% interest in Minerva Joint Venture, recently completed the sale of its Minerva Gas Plant to Cooper Energy (ASX: COE).
Valuation Methodology:Price to Earnings Multiple Approach

PE Multiple Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months
Stock Recommendation:On a year till date basis, BHP’s stock has provided a return of 23.84% to its shareholders. Further, the company’s profitability margins are well above the industry medians, which demonstrates BHP’s strong financial performance in FY19. We have valued the stock using EV/EBITDA multiple based relative valuation method and arrived at a target price of lower single-digit upside (in % terms). Considering, the company’s strengthened Board, stock and financial performance, decent outlook and valuation, we recommend a “Hold” rating on the stock at the current market price of $40.200, up 0.525% on 17 December 2019. 

 
BHP Daily Technical Chart (Source: Thomson Reuters)

Ramsay Health Care Limited

RHC Details
Achieving Growth through Acquisitions and Investments:Ramsay Health Care Limited (ASX: RHC) is a global health care company which owns and operates various types of healthcare facilities across Australia, France, Malaysia, Indonesia and the United Kingdom. Last year, through its French joint venture, Ramsay acquired pan European health care company, Capio, which helped it to become one of the largest private health care operators in the world. RHC has been leveraging Capio’s number of high performing businesses and its large footprint in France to become a leading provider of healthcare services in Europe.  Besides this, the company continues to invest in its existing hospitals in Australia and has completed sixteen capacity expansion projects during FY19, while committing a further $244 million to future projects, representing the company’s high degree of confidence in the strength of the portfolio and the long-term industry fundamentals of Australia.
Consistent Dividend Growth: The company’s continuous focus on growth and enhancing its operating model helped it to deliver positive earnings growth during FY19 (year ended 30 June 2019). The company achieved a Core Net Profit After Tax (NPAT) of $590.9 million, up 2% on previous corresponding period (pcp). The company earned a revenue of $11.4 billion, up 24.4% on the last year. The company declared a fully franked final dividend of 91.5 cents, taking the full year dividend to 151.5 cents (100% franked), up 5.2% on the prior year. Notably, in the past 19 years, the company has consistently raised its dividend every year.

FY19 Summary (Source: Company Reports)
Change of Director’s Interest:On 16 December 2019, the company’s Director Craig Ralph Mcnally, acquired 50,483 Performance Rights (FY20) and 1,301 Performance Rights (FY19), taking its total Performance Rights granted under the terms of the Ramsay Executive Performance Rights Plan to 189,076.
Valuation Methodology:Price to Earnings Multiple Approach

Price to Earnings Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months
Stock Recommendation:In the last one year, RHC’s stock has provided an impressive return of 33.94% to its shareholders. We have valued the stock using PE-based relative valuation method and arrived at a target price of higher single-digit upside (in % terms). Considering the company’s stock and financial performance, consistent dividend growth and valuation, we recommend a “Hold” rating on the stock at the current market price of $73.20, down by 0.327% on 17 December 2019. 
 
RHC Daily Technical Chart (Source: Thomson Reuters)

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