Westgold Resources Limited

WGX Details

AVL and WGX Sign Water Access Agreement: Westgold Resources Limited (ASX: WGX) is engaged in the exploration, development, and operation of gold mines, primarily in Western Australia. As on 20 May 2020, the market capitalization of the company stood at ~$940.54 million. The company has recently announced that it has signed a letter agreement wherein it will assist Australian Vanadium Limited in obtaining water access. In addition to the water access, the agreement provides access and the use of new and existing roads to move ore, materials, and products within the companies’ tenements. 

Westgold Confirms Placement of $45 Million: WGX has proposed to issue 20 million securities for a consideration of $2.25 per share to raise $45 million. The proceeds will provide ample cash to unlock the value of its operations and growth within the region, enable the acceleration of growth within the CMGP operations, and will also offer additional funds to expand its internal mining services division to handle the increased workflow requirements.

Quarterly Update: For the quarter ended 31 March 2020, the company produced 55,234oz of gold at cash costs of $1,275/oz and All-in Sustaining Cost of $1,525/oz. In the same time span, the company reported gold sales of 53,265oz at an average price of $2,087 per ounce. During the quarter, the company repaid an equivalent of $6 million in gold pre-pay debt and closed the period with a net cash position of $66 million.


Quarterly Operational Highlights (Source: Company Reports)

Future Expectations: The impact of COVID-19 has been limited, and operational workforce and output continues to be at 92-95% of capacity. However, there is still potential for unforeseen impacts on operations in the next quarter.

Valuation Methodology: EV/EBITDA Multiple Based Approach (Illustrative)

EV/EBITDA Multiple Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of WGX gave a return of 12.44% in the past six months and a return of 16.92% in the last one month. The stock is inclined towards its 52-weeks’ high level of $2.57. During 1H20, assets/equity ratio of the company was 1.51x, lower than the industry median of 1.7x, indicating a financially stable balance sheet. Considering the decent returns in the past six months, trading levels and decent operational performance, we have valued the stock using EV/EBITDA multiple based illustrative relative valuation approach and have arrived at a target price with an upside of single-digit (in percentage terms). Hence, we recommend a ‘Hold’ rating on the stock at the current market price of $2.28, down by 2.979% on 20 May 2020.

 
WGX Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
 

Worley Limited

WOR Details
 
Worley Enters into Two Global Framework Agreements with BP: Worley Limited (ASX: WOR) is a provider of professional services to cater to the changing energy, chemicals and resources needs. As on 20 May 2020, the market capitalization of the company stood at ~$4.74 billion. The company has entered into two global framework agreements with BP International Limited, one for conceptual engineering and the other for early engineering and front end engineering design services. Under the conceptual engineering agreement, WOR will provide concept selection and development services which will enable BP to assess the viability of projects. Under the other agreement, the company will offer services including, engineering design, technical definition, project execution, planning and development of project performance targets. 
Diversified Business with Decent Liquidity Levels: The company has a diversified revenue base with exposure to oil & gas capex, opex based contracts, chemicals and increased business in North America and Europe. It has also strengthened its liquidity position. During 1H20, the company reported an increase of 134% in revenue to $5,998 million and a growth of 126% in Underlying EBITA to $366 million. In the same time span, the company reported a strong balance sheet with a leverage ratio of 2x and gearing of 21.3%. 

1H20 Financial Highlights (Source: Company Reports)

What to Expect: The company has a continued focus on improving operating cash flows, gearing ratio, net debt, and leverage ratio. WOR is targeting gearing in between 25-35% and expects cost synergies of approximately $175 million within 30 months post ECR acquisition. The current economic environment has resulted in a rapid change in the business due to the decline in oil price; however, the company is taking actions to control its costs and manage cash flow. 

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Approach (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As per ASX, the stock of WOR gave a return of 32.22% in the past one month and is inclined towards 52-weeks’ low levels of $4.630. During 1H20, return on equity of the company witnessed a slight improvement over the previous half and stood at 1.9%, up from 1.3% in 2H19. Considering the resilient business model, returns in the past one month, attractive trading levels, and decent outlook, we have valued the stock using EV/Sales multiple based illustrative relative valuation approach and have arrived at a target price with an upside of low double-digit (in percentage terms). Hence, we recommend a ‘Buy’ rating on the stock at the current market price of $8.91, down by 2.195% on 20 May 2020.

 
WOR Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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