Telstra Corporation Limited

TLS Details

Uniti Group Acquired Telstra Velocity: Telstra Corporation Limited (ASX: TLS) is a provider of information services and telecommunications to domestic and overseas customers. As on 30^th December 2020, the market capitalisation of the company stood at ~$35.91 billion. Uniti Group recently completed the acquisition of certain fibre-to-the-premises (FTTP) assets of Telstra which lend high-speed broadband to South Brisbane Exchange regions (Velocity) and Telstra Velocity® estates. The total purchase consideration of the acquisition is $140 million, which includes $85 million upfront payment, $20 million to be paid in 3 equal amounts over three years and $35 million once the migration of assets is completed. The deferred sum will be paid out of future operating cash flows and existing liquidity. The purchase price will be adjusted on a pro-rata basis depending upon the number of active services at the close of migration. Post-transaction, TLS will pay a license fee of $21.6 million for using Velocity’s assets till the completion of the migration of services. Uniti and Telstra have also agreed on terms for TLS to be a retail service provider on Uniti W&I’s current network countrywide network.

A Sneak-Peak at the FY20 Results & Activities: The revenue of TLS for FY20 stood at $23.71 million, down by 6.1% on the previous year. The total income (TI) amounted to $26.16 million, dropped by 5.9% from $27.80 million in FY19. The EBITDA grew by 11.5% to $8.90 million in FY20. The profit available for distribution to equity-owners declined by 14.4% to $1.83 million. Free cash flows and net cash from operating flows stood at $4.03 million and $7.01 million, respectively. TLS reduced underlying fixed costs (UFC) by 9.2% during FY20 to $1.8 million. The cash and cash equivalents balance at the close of 30 June 2020 stood at $499 million.

FY20 Result Highlights (Source: Company Reports)

Outlook: For FY21, TLS has provided estimates on a range of metrics. TLS estimates a total income of $23.2-$25.1 billion, underlying EBITDA of between $6.5-$7 billion, capex of between $2.8-$3.2 billion, and free cashflow after operating lease payments of $2.8-$3.3 billion. The underlying EBITDA for FY21 estimates a negative impact from the pandemic to the tune of $400 million. Telstra estimates its 5G network will be covered to approx. 75% of the country’s population till June 2021.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company paid a total of 16 cents per share dividend fully franked for FY20. The stock of TLS gave a positive return of 7.91% in the past three months and a negative return of 4.72% in the past six months. The stock is inclined towards its 52-week low of $2.66. The stock of TLS has a support level of ~$2.804 and a resistance level of ~$3.501. We have valued the stock using Enterprise Value to Sales multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like MNF Group Limited (ASX: MNF), Uniti Group Limited (ASX: UWL), Vocus Group Limited (ASX: VOC), and others. Considering the current trading levels, growing customers on TLS’ network in FY20, decent guidance and outlook provided for FY21, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $3.00, down by 0.663% as on 30^th December 2020.

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

Oil Search Limited

OSH Details

Update on Drilling in Alaska: Oil Search Limited (ASX: OSH) is engaged in the exploration and development of gas and oil in Papua New Guinea. As on 30^th December 2020, the market capitalisation of the company stood at ~$7.50 billion. The company recently announced that it has found a significant rise in oil resources in Alaska post the completion of technical studies on its drilled wells (Mitquq and Stirrup) during 2019-20. However, further drilling and development studies are required to determine the actual potential of commercial exploration.

Q32020 (September) Results & Trading Update: OSH’s revenue from hydrocarbon sales declined by 29% (QoQ) to US$189 million and total sales stood at 7.55 mmboe, up by 11.2% on the previous quarter. The decline in revenue was because of a large drop in the average realised LNG and gas price. Even the revenue from other income fell by 32% to US$5.6 million for the Q3FY20. The total production for Q3FY20 went up marginally to 7.30 million boe vs 7.29 million boe in Q2FY20. The Exxon-Mobile operated PNG LNG project exceeded expectations delivering record levels of 6.55 mmboe at an annualised rate of 8.8 MTPA on average for the YTD. It is also exploring avenues with parties to expand LNG in PNG given the favourable demand and price outlook of LNG. The company has lowered the capex guidance to US$390-$460 million for FY20 on the back of reduced exploration activities and rephasing of FEED activities in Alaska. For Pikka unit development (a JV project), OSH has conducted optimsation studies for faster material initial development and completion, targeting its investment decision in late FY21 and first oil in FY25.

Q3FY20 Production & Cost Highlights (Source: Company Reports)

Strategy Update: In November 2020, OSH released a strategy update and briefed investors on its way forward and achievements for YTD. It has outlined the areas where it will focus, deliver, and needs to evolve over the next 5-10 years. OSH has set milestones to execute its overall strategy from 2020-2030 and estimated production plan for Alaska. Presently, it will continue to focus on maximising return on capital, minimising cost and capex control.  

Outlook: OSH is undertaking cost efficiency programs and prioritising capital reductions across the company to keep yearly unit production costs between $9.50-$10.50/boe.

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

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The cash and cash equivalents balance stood at US$752.7 million for Q320, higher than both Q2FY20 and full FY19 (ending 31^st December 2019). The stock of OSH gave a positive return of 38.63% in the past three months and a positive return of 14.7% in the past six months. The stock is inclined towards its 52-week low of $1.81. The stock of OSH has a support level of ~$3.374 and a resistance level of ~$4.025. We have valued the stock using Enterprise Value to EBITDA multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like Woodside Petroleum Limited (ASX: WPL), Viva Energy Group Limited (ASX: VEA), New Hope Corporation Limited (ASX: NHC) and others. Considering the current trading levels, YTD results and record production of LNG in Q320, robust liquidity position, lower production costs per unit of PNG LNG and oil, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $3.660, up by 1.385% on 30^th December 2020.

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

OceanaGold Corporation

OGC Details

Refinancing of Revolving Credit Facility: OceanaGold Corporation (ASX: OGC) is engaged in the gold exploration. The market capitalisation of the company stood at ~$1.73 billion as on 30^th December 2020. Recently, the company has announced a refinancing of $250 million Revolving Credit Facility, which has been increased by $50 million from the previous $200 million facility. In addition, the maturity of the facility has been increased by three years to 31 December 2024, which is providing business flexibility. For the quarter ended 30^th September 2020 (Q3 FY20), the company recorded gold production of 63,136 ounces at an AISC of $1,695 per ounce on sales of 60,790 ounces of gold. Revenue and EBITDA for the quarter amounted to US$97.9 million and US$13.5 million, respectively. During Q3 FY20, the company finished 2,240 metres advanced Martha Underground development at Waihi.

Key Financial Summary (Source: Company Reports)

Guidance: For the year ended 31^st December 2020, the company expects to achieve the low-end of production guidance of 295,000 to 345,000 ounces at an AISC of $1,150 to $1,250 per ounce sold. In addition, the company seems to be well-placed to navigate near-term risks on the back of previous equity raising, the refinancing of facility, and anticipated operating cash flows. The company is likely to release its Q4 FY20 earnings on 18^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: As on 30^th September 2020, the company had cash balance and total liquidity of US$127.0 million and net debt at the end of the quarter was US$187.0 million. In the last six months, the stock of OGC has corrected 26.11%. currently, the stock is trading below the average of its 52-week trading range. On a technical analysis front, the stock of OGC has a support level of ~$1.97 and a resistance level of ~$3.106. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). For the said purposes, we have Northern Star Resources Ltd (ASX: NST), Newcrest Mining Ltd (ASX: NCM), St Barbara Ltd (ASX: TNE), etc., as peers. Therefore, in light of the recent refinancing, decent performance in Q3, outlook and current trading levels, we give a “Buy” recommendation on the stock at the current trading level of $2.490 per share, up by 1.219% on 30^th December 2020.

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

Opthea Limited

OPT Details

Receipt of Tax Credit from Australian Tax Office: Opthea Limited (ASX: OPT) is involved in the development of innovative, biologics-based therapies for the treatment of eye disease. The market capitalisation of the company stood at ~$670.26 million as on 30^th December 2020. Recently, the company notified the market that it has received research and development (R&D) tax credit of $8.5 million from Australian Taxation Office for research and development costs incurred in the 2019/2020 financial year. On 21^st October 2020, the company announced the closing of US IPO of 8,563,300 American Depositary Shares, which was announced on 12^th October 2020.

Financial Highlights: For the year ended 30^th June 2020, the company recorded revenue and other income of $808,405 as compared to $914,840 in FY19. In addition, loss for the year stood at ~$16.529 million against ~$20.91 million in FY19. In addition, the company raised $50 million via a private placement to institutional investors during FY20 and also received R&D tax incentive of $14.6 million in September 2019. The company is seeking to use these funds for manufacturing enough quantity of OPT-302 drug for pivotal Phase 3 clinical trials and commercial use in wet AMD, feasibility and start-up activities to allow recruitment of patients, which is likely to commence in early calendar 2021.

Key Financial (Source: Company Reports)

Outlook: Looking forward, the company is focused on the clinical development of OPT-302 to key commercial milestones via finishing the Phase 2a clinical trial with OPT-302 in persistent DME patient.

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

EV/Sales Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company closed FY20 with the cash balance of $62,020,382 as compared to $21,534,919 as on 30^th June 2019. In the last one and three months, the stock of OPT has corrected 16.30% and 32.21%, respectively. As a result, the stock is trading towards its 52-week low level of $1.165, offering decent opportunities for accumulation. On a technical analysis front, the stock has a support level of ~$1.158 and a resistance level of ~$3.287. We have valued the stock using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price, which is offering an upside of low double-digit (in percentage terms). For the said purposes, we have considered Mayne Pharma Group Ltd (ASX: MYX), Sigma Healthcare Ltd (ASX: SIG), Pharmaxis Ltd (ASX: PXS), etc., as peers. Hence, considering the rising cash position, improved bottom line, decent outlook and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $1.915 per share, down by 3.527% on 30^th December 2020.

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

Iress Limited

IRE Details

Decent Growth in Operating Revenue: Iress Limited (ASX: IRE) is in the provisioning of IT solutions to financial market participants and wealth managers. The market capitalisation of the company stood at ~$2.09 billion as on 30^th December 2020. The company completed the acquisition of OneVue Holdings Limited on 6^th November 2020 at the consideration of 43 cents cash per share. The company added that acquisition will strengthen the administration of managed funds, superannuation and investment. For the quarter ended 30^th September 2020 (Q3 FY20), the company recorded operating revenue amounting to $133.8 million, reflecting a YoY growth of 3%, which was supported by strong performance in APAC and Mortgages. Segment profit for the quarter stood at $37.2 million as compared to $36.4 in Q3 FY19. This indicates revenue growth combined with stable margins. During 1H FY20, the company witnessed a rise of over 12% in group revenue to $270.7 million and segment profit for the half-year stood at $71.9 million.

Key Metrics (Source: Company Reports)

Outlook: For FY20, the company expects to report increased revenue momentum and enhanced profitability. In addition, the company would also be benefited from additional cost savings. The company is likely to release its FY20 results on 20^th February 2021.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company ended 1H FY20 with decent underlying fundamentals, which include cash conversion of 134%, and a net debt balance of $48.7 million, reflecting a conservative leverage ratio of 0.3x Segment Profit. The stock is currently inclined towards its 52-weeks low price of $8.290, offering a decent opportunity for accumulation. On a technical analysis front, the stock of IRE has a support level of ~$8.36 and a resistance level of ~$11.997. We have valued the stock using the price to earnings multiple based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). For the said purposes, we have considered Link Administration Holdings Ltd (ASX: LNK), Codan Ltd (ASX: CDA), TechnologyOne Ltd (ASX: TNE), etc., as peers. Thus, considering the growth in topline, acquisition of OneVue, and decent underlying fundamentals, we give a “Buy” recommendation on the stock at the current market price of $10.830 per share, up by 0.092% on 30^th December 2020.

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

Disclaimer  

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.