Origin Energy Limited

ORG Details

Non-Binding Advisory Resolution on Climate Change: Origin Energy Limited (ASX: ORG) is a leading energy company that sells electricity, natural gas, LPG, and green power products to Australian homes, businesses, and industrial customers. On 6 August 2021, the company informed the market that it plans to adopt shareholder’s non-binding advisory resolution on its climate change at the 2022 Annual General Meeting. Notably, the company will continue to deliver clean energy and technologies that will reduce emissions across the economy.

Business Update on Q4FY21 & FY21:

• Increase in Commodity Revenue: In 4QFY21, the company’s Integrated Gas business reported commodity revenue of $507.6 million, up 19% QoQ, driven by higher realised oil prices and higher domestic volumes.
• Reduction in Capital Expenditures: Capital expenditure for FY21 at its subsidiary, Australia Pacific LNG (APLNG) went down by 53% year over year, owing to ramp down in drilling, lower infrastructure spends, and lower exploration and non-operated development activity.
• Lower Gas Volume Sales in FY21: The company witnessed a 40% QoQ growth in natural gas sales in 4QFY21. However, FY21, natural gas sales were down by 11% year over year.
• Decent Cash Distribution from APLNG: For the June quarter, the cash distribution from APLNG stood at $320 million, depicting a rise of 158% from the previous quarter.

Cash Distribution from APLNG (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the risks related to the changes in energy demand driven by price, consumer behaviour, mandatory energy efficiency schemes, government policy, weather and other factors that can create revenue uncertainty and impact future financial performance.

Outlook: The company is set to release its FY21 financial results on 19 August 2021. In FY22, the company expects its Underlying EBITDA for Energy Markets to be in the range of $450- $600 million. The Underlying EBITDA for Energy Markets is expected to improve by $150 to $250 million to $600-$850 million in FY23, provided current forward commodity prices continue and flow through into customer tariffs.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has corrected by ~0.8% and is trading slightly lower than the average 52-week price level band of $3.87 and $5.90, offering a decent opportunity for accumulation. The company has been valued using a P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight discount to its peers, considering the ongoing impact of the COVID-19 pandemic, and challenging near-term outlook for Energy Markets. For the purpose of valuation, peers like AGL Energy Ltd (ASX: AGL), APA Group (ASX: APA), and Oil Search Ltd (ASX: OSH) have been considered. Considering the company’s rise in commodity revenues in 4QFY21, improving oil, gas, and electricity prices, current trading level, decent outlook, and valuation, we give a “Buy” rating on the stock at the market price of $4.345, as on 16 August 2021, 1:30 PM (GMT+10), Sydney, Eastern Australia.

ORG Daily Technical Chart, Data Source: REFINITIV

Perenti Global Limited

PRN Details

PRN Launches Technology-Driven Services: Perenti Global Limited (ASX: PRN) is a provider of surface mining, underground mining, and mining support services. Recently, the company unveiled a capital light technology-driven service offering, idoba, to the mining and resources industry. The current launch is anticipated to add further value to PRN’s present suite of global mining service offerings and generate an additional source of revenues.

Market Update for the Period Ending 30 June 2021

• Liquidity Position: As of 30 June 2021, the company’s liquidity position stood at ~$570 million, which included $266 million of cash and $303 million undrawn revolving credit facilities. At the end of the period, net debt stood at $502 million, which was down ~10% year over year.
• Expansion in Work in Hand: At the end of the period, the company expanded work in hand to $6.6 billion, with an encouraging tender pipeline of $11.0 billion.
• Organic Growth: The company remained on track to continue its organic growth strategies and won $2.8 billion of new contracts and contract extensions since 30 June 2020.

Cash Highlight (Source: Analysis by Kalkine Group)

Key Risks: The company has witnessed an impact of the COVID-19 on its surface mining business, and contraction in the labour force. Also, the adverse impact of foreign currency, and pricing pressure adds to the woes.

Outlook: The company’s balance sheet remains robust, flexible, and can support the current collection of growth developments. The company remains on track to deliver on its 2025 Strategy, which is expected to enhance shareholder’s value in the medium, and long-term. The company is set to report its FY21 results on 24 August 2021.

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

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of PRN gave a positive return of ~21.63% in the past three months and a negative return of ~42.26% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.625-$1.555. The stock of the company has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some discount than its peers’ average, considering the impact of COVID-19, foreign currency changes, mixed performance across businesses. For the purpose of valuation, few peers like MACA Ltd (ASX: MLD), Macmahon Holdings Limited (ASX: MAH), DDH1 Ltd (ASX: DDH), have been considered. Considering the low trading levels, reduction in net debt position, robust organic growth strategies, contract wins, valuation, and key risks associated with business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.835, down by ~7.735% on 16 August 2021.

PRN Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:  

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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