Stocks’ Details
 

Oil Search Limited

Progress of Retail Entitlement Offer:Oil Search Limited (ASX: OSH) is primarily involved in the exploration, development and production of oil and gas resources. As at 24 April 2020, the company had a market capitalization of around A$5.1 billion. On 22 April 2020, the company announced that it has received the acceptance of 9,612,322 entitlements for the retail component of its accelerated non-renounceable pro-rata entitlement offer of fully paid ordinary shares in Oil Search. The Retail Entitlement Offer is scheduled to close on 27 April 2020 at 5:00pm Sydney time. The proceeds of the Retail Entitlement Offer will be used to strengthen the company’s balance sheet and increase liquidity, so that it can withstand a prolonged period of low oil prices.

Q1FY20 Update:For the quarter ended 31 March 2020, the company reported total production of 7.37 mmboe, up 5% on last quarter, supported by a continued strong performance from PNG LNG and a 43% increase in operated production. For the quarter, the company reported total sales of 6.87 mmboe and total revenue of US$359.4 million.


Q1FY20 Update (Source: Company Reports)

What to expect:The company’s production guidance for 2020 stands at 27.5 – 29.5 mmboe, comprising approximately 24 – 25 mmboe from the PNG LNG Project, subject to any COVID-19 related impact. OSH is targeting a reduction in production costs of US$1– 2/boe, and to enhance its capital management programs.

Valuation Methodology: P/BV Multiple Based Relative Valuation

P/BV Multiple Based Approach(Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months, *1USD= 1.57AUD

Stock Recommendation: OSH is of the view that it is in a robust position to withstand a sustained period of low oil prices. In the past three months, OSH’s share price has declined by around 67.06% is currently trading near to its 52 weeks low price, offering decent opportunity for accumulation. We have valued the stock using P/BVbased illustrative relative valuation method and have arrived at a target price with lower double-digit upside (in % terms). For the purpose, we have taken peers like Origin Energy Ltd (ASX: ORG), Worley Ltd (ASX: WOR), Woodside Petroleum Ltd (ASX: WPL), etc. Considering the company’s decent performance in Q1FY20, recent capital raising, and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $2.610, up by 4.4% on 24 April 2020. 

Western Areas Limited

March Quarter Update: Western Areas Limited (ASX: WSA) is Australia’s leading nickel producerwith a portfolio of low-cost, high-grade operating nickel mines. The market capitalisation of the company as at 24 April 2020, stood at $586.38 million. On 24 April 2020, the company released its March quarter update, wherein it informed that its nickel production and sales volumes during the quarter proceeded as planned with guidance remaining on track for FY20, following implementation of COVID-19 plans.In total, the company mined 5,896 tonnes of nickel and sold 6,038 tonnes over the quarter.
 

Production Overview (Source: Company Reports)
 
H1FY20 Performance:In the first half of FY20, the company reported higher sales revenue of A$156.2 million, driven by the stronger nickel price. Nickel production into concentrate for 1HFY20 totaled 10,658 nickel tonnes at a cash cost of nickel in concentrate of $3.07/lb. Over the period, the company finalised two new offtake agreements with BHP Billiton Nickel West Pty Ltd and Jinchuan Co. Ltd for its high-quality concentrate products.
 
What to expect:The company currently believes that it is funded to continue advancing its key growth projects. In order to mitigate the risk of a COVID-19 outbreak, the company has implemented various new policies and procedures, in line with directives from both the state and federal governments. Although, the company has maintained its FY20 production and cost guidance, it remains cognizant that the COVID-19 situation is still evolving and dynamic, and it may impact the company’s operations in the future.
 
Valuation Methodology: Price to Book Multiple Based Relative Valuation

Price to Book Multiple BasedApproach (Source: Thomson Reuters)

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

Stock Recommendation: WSA is currently in a strong financial position with cash at bank of $181.4 million and no debt.In the last six months, the stock of WSA has declined by around 34.15%, but has increased by 28.92% in the last one month. The stock is currently inclined towards its 52-week low level of $1.625. We have valued the stock using Price to Book based illustrative relative valuation method and have arrived at a target price of lower double-digit growth. Considering the company’s decent financial performance, decent quarterly performance, and valuation, we give a “Buy” recommendation on the stock at the current market price of $2.10, down by 1.869% on 24^th April 2020. 
 

Pilbara Minerals Limited

Decent operational and financial performance in March Quarter: Pilbara Minerals Limited (ASX: PLS) is a mining company specialized in the exploration and development of lithium and tantalum. On 1^st April 2020, the company released its March quarter update, wherein it informed that it shipped 33,893 dry metric tonnes (dmt) of spodumene concentrate product (SC6.0) over the quarter. The company sold 33,998 lbs of tantalite concentrate during the quarter and witnessed strong improvement in product recovery trend. The company ended the quarter with $108.2 million in cash and irrevocable bank letters of credit for shipments completed within the quarter.

H1FY20 Results Highlights:In the first half of FY209, the company produced a total of 36,033 dmt of spodumene concentrate. Over the period, the company completed five shipments totalling 53,222 dmt of spodumene concentrate. Net loss for the period stood at $63.38 million.


Total ore mined and processed (Source: Company reports)

Offtake Agreement in Place at Pilgangoora: On 25 March 2020, the company announced that it has secured a five-year offtake agreement for its Pilgangoora Lithium-Titanium project for up to 75ktpa of high quality, spodumene concentrate. 60ktpa is required to be supplied in 2020.

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: The stock of PLS has declined by around 45.21% in the last three months and is currently trading near to its 52 weeks low price of $0.135, offering investors a decent opportunity for accumulation. We have valued the stock using EV/sales based illustrative relative valuation method and have arrived at a target price with lower double-digit upside (in % terms). For the purpose, we have taken peers like Orocobre Ltd (ASX: ORE), Western Areas Ltd (ASX: WSA), and Galaxy Resources Ltd (ASX: GXY). Considering the company’s decent operational and financial performance in March quarter, recent long-term offtake agreement for its Pilgangoora Lithium-Titanium project, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.195, down by 2.5% on 24^th April 2020. 

Bisalloy Steel Group Limited

Remains on track to meet FY20 Operating EBITDA guidance: Bisalloy Steel Group Limited (ASX: BIS) is a market-leading high wear, high strength steel company in Australia. On 24 April 2020, BIS provided an update, wherein, it informed that it is on track to meet FY20 Operating EBITDA guidance of $12.0-$13.0 million. The FY20 EBITDA guidance is representing a 30-40% increase on FY19 result. The company also informed that it witnessed strong performance in the domestic Australian market during the third quarter of FY20. However, international trading continues to be affected by weaker demand in China and Indonesia.

H1FY20 Performance Highlights:For the six months ended 31 December 2019, the company reported revenue of $56.41 million, up 12.7% on pcp. For the period., the company reported operating profit of $2,994k and Profit after tax of $2,173k. During the period, the company saw strong performance in the domestic Australian market with Bisalloy increasing market share as well as increasing the margin per tonne of product sold.


H1FY20 Results Summary (Source: Company reports)

Stock Recommendation:The company is of the view that COVID-19 will not have any material effect on the company’s second half results. In the last one month, the stock of BIS has increased by 32.26% on ASX and is currently inclined towards its 52 weeks high price. On TTM basis, BIS is trading at a price to book multiple of 1.2x, lower than the industry average (Basic materials) of 2x. Considering the uncertainty around the COVID-19 impact and current trading levels, we advise investors to adopt a watch stance on the stock at the current market price of $0.90, up by 9.756% on 24 April 2020, owing to the recent profit guidance update. 

 
Comparative Price Chart (Source: Thomson Reuters)

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