In the past few months, ASX has done well with boost coming specifically from the mining sector while banks were under pressure from the Royal Commission. It is expected that ASX might do well for its September Quarter as well, which has although started with a mix of many elements like volatility in oil prices, building approvals scenario, US interest rates hikes, threat from US-China global trade war, and boost in technology space and few commodity areas like nickel etc. We are looking forward to seeing some positive results from some companies in the upcoming reporting season given the latest macro picture and inherent fundamentals at company level. For instance, energy/ oil stocks might report well given the latest run-up in oil prices while now these seemingly move in a red zone. Further, post the Royal Commission, some banks have taken an appealing position.
 

Woodside Petroleum Limited (ASX:WPL)

WPL Details

Volatility in oil-prices- Woodside Petroleum Ltd (Woodside) is an oil and gas company and is engaged in hydrocarbon exploration, evaluation, development, production and marketing. According to the latest update, Wheatstone's two trains are important additions to the six trains on the Burrup Hub in WA as these will enable WPL to achieve the targeted production of 100 Million Barrels of Oil Equivalents (MMboe) by 2020. It was reported that oil prices are now falling with fears on international trade and OPEC decisions on production enhancements. However, the past few months saw a significant increase in the prices and this would help the group report a better performance in upcoming reporting cycle while headwinds prevail for future.


Trend of LNG Demand in a region-wise manner (Source: Company Reports)

According to the management, most of the development projects are well on track and domestic gas production was expected to be commencing in H2 FY18. During the quarter, the company has completed the acquisition of an additional 50% interest in the Scarborough gas field. It is expected that the Group will release its financials on 15 August 2018. In the past three months, the stock price was up by 17.5 per cent (as on 12 July 2018) and is trading at the higher level as it is inching towards its 52-week high price that is $36.55. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $ 35.63 keeping in mind the oil-price scenario, threat from US-China trade war which could impact the overall economic growth and LNG dynamics.
 

WPL Daily Chart (Source: Thomson Reuters)
 

Oil Search Limited (ASX:OSH)

OSH Details

Progressive On-going Drilling at Barikewa 3- Oil Search Limited, is an oil and gas exploration and development company. The Group recently released an update on Exploration and Appraisal Drilling report for June month and according to the release, the drilling at the Barikewa 3 Appraisal Well in Petroleum Retention License (PRL) 9 in the Western province sits at a total depth of 821 metres as of 25 June 2018. At the end of March 2018, the company held cash of $697.3 million with gross debt of $3,625.5 million, all of which relates to the PNG LNG facilities. Recently, oil prices witnessed massive pressure as prices crashed lately with global macro-economic scenario but otherwise were climbing higher.


Barikewa 3 Image (Source: Company Reports)

The company has also downgraded its 2018 production estimate and expects it to be in the range of 23 - 26 million barrel of oil equivalent (MMboe) from the previous guidance of 28.5 – 30.5 MMboe due to the issues that erupted owing to natural calamity. We expect that the company has potential to grow further at the back of ongoing developments, resulting into top-line growth of the company in years to come. ROE improved from 2.7 per cent in June 2017 to 3.5 per cent in December 2017. The stock price has been rising up since last one year and was up by 38.38 per cent as on 12 July 2018. It is better to “Hold” the stock at the current market price of $9.02 by looking at the progressive drilling activities and the trading levels.


OSH Daily Chart (Source: Thomson Reuters)
 

Westpac Banking Corporation (ASX:WBC)

WBC Details

Introduction of new terms and conditions related to Loans - Westpac has been Australia's first financial entity to start a service revolution and is the first bank and oldest amongst the big four major banking organisations in Australia. The Group declared a dividend of 94 cents, per ordinary share, fully franked and represents a pay-out of 75 per cent with a dividend yield of 6.3 per cent. Recently, it announced that it will redeem all of its Westpac Subordinated Notes II (WSN II) (representing 9,252,850 WSN II at $100 each) on their first optional redemption date of 22 August 2018, in accordance with the WSN II Conditions and the last date of trading in WSN II on ASX will be 10 August 2018. There are banks which are targeting borrowers' growing fears about security and stability in turbulent real estate and capital markets, but WBC is planning to give special offers which can give their clients a peace of mind regarding certainty of their repayments and WBC is offering borrowers with a limited term discounts of between 30 basis points and 50 basis points on principal and interest and interest-only loans of at least $150,000.


Net Interest Margin Movement (Source: Company Reports)

Further, banks might be maintaining their existing rates as RBA has not raised the cash rates till now. Recently, WBC guarded itself in front of Royal Commission with respect to allegations regarding the loan quality; and because of this, it introduced new terms and conditions which were tougher so that there is no further potential of undermining of underwriting standards. According to the management, the concerns raised by Royal Commission are important and provide a critical opportunity to restore customer trust across the sector. We give a “Buy” recommendation on WBC at the current market price of $29.60 keeping in mind the interest rates landscape and other strategies which Bank is introducing to improve the banking sentiments.
 

WBC Daily Chart (Source: Thomson Reuters)
 

Western Areas Limited (ASX:WSA)

WSA Details

Decent Outlook for Nickel Market - Western AreasLimited is engaged in mining, processing and sale of nickel sulphide concentrate. Recently, the group has reported another quarter of free cash flow generation with cash at bank increasing to $135.7 million after capital expenditure, feasibility study and exploration costs of $13.6 million. Based on quarterly results, the group has reviewed its guidance metrics for FY18 and expects mine production to be marginally lower by ~0.5k nickel tonnes (i.e., approximately 2 per cent of production guidance) to around 21,000 nickel tonnes for the year. On the other hand, London Metal Exchange (LME) and Shanghai Futures Exchange (SHFE) nickel stockpiles had recently fallen dramatically to their lowest levels in many years, which is another indicator of the decent outlook for the nickel market.


Overview of FY18 Guidance (Source: Company Reports)

The Company issued 693,733 fully paid ordinary shares to the Western Areas Employee Share Trust for the Performance rights vested upon satisfaction of the performance and time based vesting criteria contained in the terms and conditions of the shareholder approved Performance Rights Plan. The nickel price went up by 16.8 per cent in the last six months and by 58.7 per cent in last one year. The Group is expecting to release its financial update on 20 August 2018 and nickel price scenario might have helped the group. In one year, the stock price was up by 65.73 per cent as on 12 July 2018 and was up by 2.83 per cent as on 13 July 2018. We give a “Hold” recommendation at the current market price of $3.63 (towards its 52-week high price ($3.93)) by looking at the commodity-price scenario and its production activities.
 

WSA Daily Chart (Source: Thomson Reuters)

 
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