Stocks’ Details
 

Oil Search Limited

Equity Raising to Strengthen Balance Sheet: Oil Search Limited (ASX: OSH) is engaged in the exploration, production and development of oil and gas resources. The market capitalisation of the company stood at $6.15 Bn as on 6^th May 2020. With respect to PNG LNG, it has not experienced any impact on production from COVID-19 till 5^th May 2020. Recently, the company has completed a capital raising of US$700 million. Proceeds from the issue improve OSH’s liquidity position and strengthens its balance sheet. During Q1FY20, the company experienced a rise of 5% in production, which was underpinned by a continued strong performance from PNG LNG, which produced at an annualised rate of 8.7 MTPA.


Total Liquidity (Source: Company Reports)

Focus for FY20: For FY20, the company is focused on improving liquidity, disciplined capital management, decreasing costs and suspending all discretionary activity.

Valuation Methodology:Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based 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 is well-positioned to withstand an extended low oil price environment and benefit from oil price recovery. As at 31^st March 2020, pro-forma liquidity of the company stood at US$1.8 billion with no near-term debt maturities. We have valued the stock using P/CF multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Origin Energy Ltd (ASX: ORG), Worley Ltd (ASX: WOR) and Caltex Australia Ltd (ASX: CTX) and arrived at a target price with an upside of lower double-digit (in percentage terms).Hence, considering the decent liquidity position, increased production and outlook, we give a “Buy” recommendation on the stock at the current market price of $2.950 per share, down by 0.338% on 6^th May 2020.

Worley Limited

Rapid Change in Business: Worley Limited (ASX: WOR) provides professional services to meet the changing needs for energy, chemical and resources. The market capitalisation of the company stood at $4.3 Bn as on 6^th May 2020. The business has experienced rapid change due to current economic circumstances. However, the impact of these changes was limited. WOR is delivering projects and providing services to support its customers with most of its office-based people working from home. The below picture gives an overview of revenue and EBITA growth:


Revenue and EBITA Growth (Source: Company Reports)

Well-Placed for Future: The company is focused on becoming the energy system of the future and expects to witness an evolution of its portfolio towards its net-zero ambition. WOR’s business is well placed for future global energy requirements.

Valuation Methodology:Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: As of 31^st December 2019, the company had total liquidity of $1.36 billion, which reflects its stable financial position. It added new debt facilities of $465 million to improve its liquidity position. We have valued the stock using P/CF multiple based illustrative relative valuation method, and for the purpose, we have taken peers such as Beach Energy Ltd (ASX: BPT), Oil Search Ltd (ASX: OSH), Origin Energy Ltd (ASX: ORG) etc., and arrived at a target price with an upside of lower double-digit (in percentage terms). Therefore, in light of a stable financial position and limited impact of COVID-19, we give a “Buy” recommendation on the stock at the current market price of $8.550 per share, up by 3.386% on 6^th May 2020.

AGL Energy Limited

Strong Balance Sheet: AGL Energy Limited (ASX: AGL) is engaged in the operation of energy businesses. The market capitalisation of the company stood at $10.29 Bn as on 6^th May 2020.  The company recently updated that it has bought back a total of 29,243,200 shares at the consideration of $561,925,873.54, as per its daily share buy-back notice. AGL stated that the underlying market and customer demand is holding up well and wholesale prices have materially impacted. The company possesses a strong balance sheet and significant liquidity comprising of around $1 billion in cash and undrawn facilities along with Baa2 rating, signifying a stable outlook. AGL has no bond debt to refinance until FY22.


Debt Maturity Profile (Source: Company Reports)

Guidance for FY20: Due to COVID-19 impacts, the company is expecting bad debt and operating expenditure to increase. For FY20, AGL anticipates underlying profit after tax in the ambit of $780 million to $860 million.

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

P/BV Based Valuation (Source: Refinitiv, Thomson Reuters)
 
Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of AGL Energy is inclined towards its 52-week low level of $15.150, offering decent opportunities to accumulate. We have valued the stock using P/BV multiple based illustrative relative valuation method and arrived at a target price with an upside of lower double-digit (in percentage terms). Thus, considering the strong cash conversion and liquidity and current trading levels, we give a “Buy” recommendation on the stock at the current market price of $16.480 per share, up by 0.733% on 6^th May 2020.
 
 
Comparative Price 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.