Stocks’ Details

BHP Group Limited

A Look at BHP’s June ’19 Quarter Highlights: BHP Group Limited (ASX: BHP) is involved in the petroleum exploration, development and production of Oil and Gas; mining of copper, silver, lead, zinc, molybdenum, uranium and gold; mining of iron ore; and mining of metallurgical coal and energy coal. The company in its quarterly report highlighted that it exceeded full year production guidance for petroleum and met revised guidance for copper and iron ore. The metallurgical coal and energy coal production was marginally below the guidance, due to the result of lower than expected wash plant yields and adverse weather impacts during the June 2019 quarter. Recently, the company announced the proposed dates for ex-dividend date, record date and payment date of the 2019 final dividend of BHP would be 5^th, 6^th and 25^th of September 2019, respectively. The preliminary results for full-year of 2019 are expected to be released on 20 August 2019.


June Quarter and FY19 Production Metrics (Source: Company Reports)

H1FY19 Financial Performance:Revenue from the continuing operations increased by 1% pcp to US$20,742 Mn. The profit after taxation attributable to the members of the BHP Group increased by 87% pcp to US$3,764 Mn.


H1FY19 Income Statement (Source: Company Reports)

What to Expect: With respect to petroleum, the company is expecting a decline in the volumes to be between 110 MMboe and 116 MMboe in the 2020 financial year on the back of planned maintenance at Atlantis and natural field decline throughout the portfolio. With respect to FY20, the company is expecting the production of Metallurgical coal in the range of 41Mt – 45Mt and Energy coal production to be between 24Mt- 26Mt. Additionally, for FY20, the company expects copper production in the range of 1,705Kt - 1,820Kt and nickel production to be around 87Kt.

Stock Recommendation: BHP Group’s share generated positive YTD return of 12.01%. Its EBITDA margin and net margin for H1FY19 stood at 49.3% and 21.4%, better than the industry median of 35.8%, and 13.3%, respectively, implying decent fundamentals. Its ROE for H1FY19 stood at 7.6%, better than the industry median of 6.8%, which implies the company generated a better return for its shareholders than its peer group. Its current ratio for H1FY19 stood at 2.55x, better than the industry median of 1.88x, which implies the company is in a better position to address its short-term obligations. Its annual dividend yield stands at 4.61%. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $36.250 per share (up 0.221% on August 19, 2019).
 

Rio Tinto Limited

Free Cash Flow Increased by 35% to $3.9 Bn: Rio Tinto Limited (ASX: RIO) is involved in the minerals and metals exploration, development, production and processing and marketing. The company recently published its half year results, where it highlighted that its underlying EBITDA and EBITDA margin were reported at $10.3 Bn and 47%, respectively. It was added that its financial performance was majorly driven by Pilbara operations with a 72% EBITDA margin, underpinned by strong iron ore prices. The free cash flow for the period was reported at $3.9 Bn, which was 35% higher than 2018 first half. Its cash balance at the end of the period was reported at $7.8 Bn, with net debt of $4.9 Bn.

Its underlying earnings for the period was reported at $4.9 Bn, which is 12% higher than the previous corresponding period, due to a strong contribution from Iron Ore.

It announced of cash return of $3.9 Bn, which comprised interim ordinary dividend of $2.5 Bn, equivalent to US 151 cents per share (A 219.08 cps), and special dividend of $1.0 Bn, equivalent to US 61 cents per share (A 88.50 cps). It will be payable on 19 September 2019 with a record date of 9 August 2019.

Consolidated sales revenue increased by 9% on pcp to $20.7 Bn, excluding the $0.8 Bn contributions from the coking coal assets divested in 2018.The higher iron ore prices offset the impact of lower volumes and lower aluminium prices.


Half Yearly Key Financial Metrics (Source: Company Reports)

What to expect: As per the release, in 2019, RIO expects the run-rate from the mine-to-market programme to be around $0.5 Bn, despite weather impacts, which reflects operational challenges experienced in the Pilbara, which reduced 2019 first half run-rate to $0.2 Bn. The company expects its mine-to-market productivity programme to deliver an additional free cash flow run-rate of $1.0-1.5 Bn (previously $1.5 Bn) from 2021. The Capital Expenditure is expected to be around $6.0 Bn in 2019 and around $6.5 Bn in 2020 and 2021. The company is expecting an effective tax rate on underlying earnings of around 30% in 2019. The Pilbara unit cash costs are expected to $14-15 per wet metric tonne (excluding freight) in 2019.

Stock Recommendation: Its EBITDA margin and net margin for H1FY19 stood at 48.3%, and 14.1%, better than the industry median of 35.8% and 13.3%, respectively, implying decent fundamentals. Its ROE for H1FY19 stood at 9.9%, better than the industry median of 6.8%, which implies the company generated a better return for its shareholders than its peer group. However, on the valuation front, its next twelve months EV/Sales and EV/EBITDA multiple stood at 2.0x and 4.2x, above than the industry median (forward) of 1.4x and 2.8x, respectively, indicating an overvalued position at the current juncture. Hence, considering the aforesaid facts and current trading levels, we recommend an “Expensive” rating on the stock at the current market price of $84.960 (up 0.283% on August 19, 2019).
 

Saracen Mineral Holdings Limited

NPAT Increases By 22% On PCP To $92.5 Mn: Saracen Mineral Holdings Limited (ASX: SAR) is involved in the gold mining, processing & sales and mineral exploration. The company recently published FY2019 financial results, where it highlighted that its NPAT was reported at $92.5 Mn, which is a 22% increase as compared to $75.6 Mn in FY2018. The revenue increased by 9% from $511.0 Mn in FY18 to $555.6 Mn in FY19. During the period, Gold production increased by 12% from 316,453oz at All-In Sustaining Costs (AISC) of $1,139 per oz in FY18 to 355,077oz at AISC of $1,030 per oz in FY19.

After spending $216.9 Mn on exploration and growth, SAR reported a cash balance of $154.4 Mn on June 30, 2019, as compared to $118.3 Mn on June 30, 2018.The Board of Directors declared an inaugural dividend policy (to be applied from FY20) targeting a payout equal to 20-40% of NPAT, subject to reaching and maintaining a minimum cash balance of $150 Mn.


FY19 Key Financial Metrics (Source: Company Reports)

What to expect: As per the release, growth in earnings, production and mine lives are expected to remain in the priority list of the company and therefore SAR has committed a spending of $50 Mn to exploration in FY20. The company aims to ensure that it maintains a strong cash position to fund its organic growth and acquisition opportunities, it also intends to return excess of cash to its owners. Its FY20 production guidance has been estimated at 350,000 - 370,000oz, with growth plans in place to achieve 400,000oz p.a from FY2021 onwards, from its two operations in Western Australia i.e. The Carosue Dam Operation and The Thunderbox Operation.

Stock Recommendation: Its EBITDA margin and net margin for H1FY19 stood at 37.1% and 15.2%, better than the industry median of 35.8%, and 13.3%, respectively, implying decent fundamentals. Its ROE for H1FY19 stood at 10.6%, better than the industry median of 6.8%, which implies the company generated a better return for its shareholders than its peer group. Its current ratio for H1FY19 stood at 2.64x, better than the industry median of 1.88x, which implies the company is in a better position to address its short-term obligations. Currently, the stock is priced towards 52 weeks high level of $4.750 and has a price earnings ratio of 44.080x. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $3.710 per share (down 5.115% on August 19, 2019).


Comparative Price Chart (Source: Thomson Reuters)  

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