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Global stocks Shares

Sweetened Proposal for Sydney Airport Looks Like Enough; FVE Up to AUD 8.25, Shares Fairly Priced

Long distances between major cities in Australasia means flying is a preferred mode of travel. Despite a rival airport scheduled to open in 2026, we expect Sydney Airport to remain the favoured terminal for business and long-haul leisure travellers for the next decade. This is due to existing infrastructure which is costly to replicate, and proximity to the CBD, affluent suburbs and tourist areas, and connections to roads and public transport. 

Revenue is about evenly sourced from aeronautical and other operations. Aeronautical fees are mostly on a per-passenger basis, with base charges negotiated with airlines every five years. Retail is the largest non-aeronautical contributor, accounting for about 23% of pre-COVID-19 revenue. Duty-free and luxury shopping has threats, given the ability for e-commerce sites to offer lower prices than duty-free, and ESG risks given the reliance on tobacco and alcohol sales. However, in the long run, risks materialising in any particular sub-category should be offset by passenger growth boosting defensive categories such as food, car-rental, parking, souvenirs, and holiday items

Regulators have no power to intervene other than to recommend more regulation. Rather than pushing for more onerous regulation, government and regulators could foster more competition via the new Western Sydney Airport, though we believe this will take more than a decade. 

Catering to the growing middle-class in neighbouring countries remains a growth opportunity. Population and passenger growth should aid Sydney Airport as it can increasingly allocate slots away from domestic and toward international flights. International flights account for about 40% of passengers, but about 70% of passenger revenue.

Sweetened Proposal for Sydney Airport Looks Like Enough; FVE Up to AUD 8.25, Shares Fairly Priced:

Sydney Aviation Alliance has sweetened its pitch for Sydney Airport, now proposing a deal at AUD 8.75 per share. While the new price is only 3.5% higher than the previously rejected AUD 8.45, this time Sydney Airport granted due diligence and said it would support a binding offer at that price. A conclusion is unlikely until 2022 given it will require 4 weeks of due diligence, a binding bid from the consortium, a shareholder vote, and regulatory investigations. A lot could happen between now and then; however, the most likely outcome is a takeover proceeding at the proposed price.

We raise our fair value estimate to AUD 8.25, ascribing a 75% probability a deal proceeds at AUD 8.75, and a 25% weighting to our underlying valuation in the absence of a bid, which is unchanged at AUD 6.70. 

We understand the need for due diligence given the hefty price tag, however, we think it unlikely the due diligence process will uncover anything to disrupt the offer. Sydney Airport is well run, and its assets and books have been scrutinised closely by many parties, and its now public listing. It also has a huge debt load that attracted close scrutiny from creditors in 2020, as well as air safety and security bodies scrutinising its physical assets.

A more likely disruptor is economic or coronavirus news. We maintain our view that regulatory authorities are unlikely to throw up insurmountable concerns about aviation safety, national security, foreign investment, or competition. Competition is the most likely hurdle, if any, given consortium member stakes in other airports.

Bulls Say

  • Sydney Airport’s convenience to the business district and coastal suburbs of Australia’s largest city makes it near impossible to replicate. Rising incomes in nearby nations, and Australia’s growing population bodes well for long-term passenger numbers.
  • A light regulatory regime is unlikely to become significantly more onerous.
  • Sydney Airport has spare landing slots, plus the ability to reallocate slots away from domestic and toward more lucrative long-haul international flights, as passenger traffic grows.

Financial Strength

Financial Strength Sydney Airport’s financial health is fair, with relatively defensive income offset by high debt.Net debt/EBITDA was a high 14 times in fiscal 2021, up from 7.2 in 2019.Management acknowledged the high debt and took appropriate actions to reduce leverage, including cancelling distributions in 2020, delaying capital expenditure, securing additional bank facilities, and raising AUD 2 billion in equity in the September quarter of 2020. We expect calendar 2021 to be the low point for EBITDA, with 2022 forecast to be significantly higher due to fewer and less strict lockdowns. 

Company Profile

Sydney Airport has a lease to operate the facility until 2097. As Australia’s busiest airport, it connects close to 100 international and domestic destinations, and handled more than 40 million passenger movements annually until COVID-19 border restrictions in 2020. Regulation is light, with airports setting charges and terms with airlines, and the regulator monitoring the aeronautical and car park operations to ensure reasonable pricing and service. Retail and property operations are free from regulatory oversight, though political and commercial pressure limits Sydney Airport from overly flexing its pricing muscle, particularly as the government owns the rival Western Sydney Airport, set to open in 2026.

(Source:Morningstar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Shares Technology Stocks

Wisetech FVE Significantly Increased Following Evidence of Strategy

Business Strategy and Outlook

WiseTech Global was founded in 1994 as a software provider to the Australian logistics sector and has since grown organically to become a leading global provider of logistics software as a service, or SaaS. The company has over 6,000 customers, including 19 of the 20 largest third-party global logistics providers, and a customer retention rate of over 99%. WiseTech’s business model generates revenue based on the extent to which customers use its software rather than a traditional subscription model, which usually offers unlimited use within a set time frame. Despite strong revenue growth, WiseTech still comprises less than 5% of the global logistics software market, much of which is created in-house by logistics companies. 

Although WiseTech lacks the scale of much larger enterprise resource planning, or ERP, software providers such as SAP and Oracle, the company’s niche focus and innovative culture have enabled it to outmanoeuvre larger peers. Descartes increased revenue at a CAGR of 14% over the five years to fiscal 2021 we forecast a CAGR of 14% over the next decade. WiseTech’s cloud-based platform is being adopted by logistics companies as a replacement for legacy and in-house developed systems, and we attribute client wins to the superior functionality and usability of the software and proven global SaaS platform.

Financial Strength

WiseTech is in good financial health thanks to its capital-light business model, highly recurring earnings, and narrow economic moat. The company is effectively equity-funded with no debt. Founder and CEO Richard White to remain reluctant to undertake large acquisitions and leverage the balance sheet. However, it’s not uncommon for technology companies to forgo short term profitability for long-term strategic benefits, and we are comfortable with management’s long-term focus.

WiseTech in a much more bullish light and have dramatically raised our earnings forecasts and fair value estimate to AUD 60.00 from AUD 9.00 per share. Our forecast revenue CAGR over the next decade, to 19% from 12% and our terminal EBIT margin to 37% from 32%, both of which add around AUD 14 to the fair value, or 28% of the total fair value increase. WiseTech’s cost of equity to 7.5% from 9.0% and increased the terminal growth rate to 4.9% from 2.2%, both of which add AUD 11 to our fair value or 22% of the total fair value increase.

WiseTech’s fair value increase is largely due to a higher terminal value, as 83% of our prior fair value was attributable to the terminal value. The terminal value increase is driven by the following four factors which have approximately equal impacts. The strong fiscal 2021 result, improved disclosure, and better than expected fiscal 2022 outlook, which increase our confidence in WiseTech’s global expansion strategy.

Bulls Say’s

  • WiseTech has a narrow economic moat based on customer switching costs, as evidenced by a very high customer retention rate of over 99% for the past four years.
  • WiseTech’s revenue is expected to continue growing strongly over the next decade as its logistics software platform replaces in-house and legacy software solutions. A high degree of operating leverage should create even stronger EPS growth.
  • The capital-light business model should enable the balance sheet to remain debt-free, with operating cash flow covering research and development spending and dividend payments.

Company Profile 

WiseTech is a leading global provider of logistics software, and 19 of the largest 20 third-party logistics companies are customers of the firm. The company has a very strong customer retention rate of over 99% per year, and is growing quickly as its global SaaS platform replaces legacy software. The company reinvests around 30% of revenue into research and development, but around 50% of this cost is capitalised, leading to poor cash conversion. Founder Richard White remains CEO and the largest shareholder.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
LICs LICs

WCM Global Growth Increases Final Dividend 25%

Recently, WAM Global Growth provides 2.5 percent per share. 

WCM Global Growth Limited ((WQG)) reported a net operating profit after tax of $48.4 million for fiscal year 21. For FY21, the investment portfolio returned 26.8 percent, with total shareholder returns of 35.6 percent.

The Company declared a final dividend of 2.5cps for FY21, fully franked, a 25% increase over the FY20 final dividend. This represents a 4.5cps full-year dividend, a 12.5 percent increase over the FY20 full-year dividend.

The Board has announced that the next two dividend payments will be increased, with an FY22 interim dividend of 2.75cps and a final FY22 dividend of 3.0cps. These dividends will most likely be fully franked. The increased dividends will be subject to corporate, legal, and regulatory considerations, as well as the Company having sufficient profit reserves and franking credits.

WQG issued Bonus Options on a one-for-three basis in February 2021. The options have an exercise price of $1.50, which represents a 7.4 percent discount to the closing share price on August 19, 2021. The exercise period for the options is until August 31, 2022. 

Shareholders who exercise their options by COB 17 September 2021 and continue to hold the shares on the relevant record date will be eligible for all of the dividends listed above.

Company Profile 

WCM Global Growth Limited (WQG or the Company) is a listed investment company investing in global equities. The Company provides investors with access to an actively managed portfolio of quality global companies found primarily in the high growth consumer, technology and healthcare sectors. The portfolio is managed by WCM Investment Management (WCM), a California-based specialist global equity firm with an outstanding long-term investment track record. WCM’s investment process is based on the belief that corporate culture is the biggest influence on a company’s ability to grow its competitive advantage or ‘moat’. 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Currencies Trading Ideas & Charts

SBI Holdings to launch Japan’s first crypto asset fund;investors bullish on XRP

According to a report by Bloomberg, SBI intends to launch a fund that will invest in Bitcoin, Ethereum, XRP, Bitcoin Cash and Litecoin.

The fund, according to Tomoya Asakura, President of SBI affiliate Morningstar Japan K.K., would be geared at investors who are familiar with crypto assets and their volatility. Investors may need to invest anywhere from $9,100 (1 million yen) to $27,200 (3 million yen).

 According to the report, SBI wants to launch the first crypto asset fund by the end of November, with a second crypto asset fund to follow depending on performance. Asakura also alluded to SBI creating a separate crypto fund for institutional investors if the interest was high enough.

SBI had intended to launch its crypto fund as an investment trust, which is a common way to invest in Japan. However, the Financial Services Agency (FSA), the country’s primary financial regulator, has prohibited corporations from selling crypto investments using this way. After that, the corporation modified its approach and will now offer its crypto fund to investors through an “anonymous collaboration.” Due to Japan’s strict laws, it took the company more than four years to get the fund up and running.

The SEC vs. Ripple case takes another turn, making investors bullish on XRP.

  • The Securities and Exchange Commission announced on 22 Dec,2020 that it has filed an action against Ripple Labs Inc. and two of its executives, who are also significant security holders, alleging that they raised over $1.3 billion through an unregistered, ongoing digital asset securities offering.
  • Ripple Holdings is still the largest public holder of XRP, and the payments giant is facing legal action. Since December 2020, this has had a persistent negative influence on the price of the native asset XRP.
  • Recently, in the ongoing litigation, both Ripple and the SEC admit that Ripple owes no fiduciary duty to XRP holders. As a result, the XRP army is prepared to advocate for its own interests in the lawsuit.
  • This indicates that the XRP community has stepped up to protect the altcoin from unfavourable price impact.
  • Following a flash meltdown that saw the global crypto market value drop, the XRP price recovered primarily  due to a spike in on-chain activity. XRP price rose 10% following a slight reversal, according to data from Santiment, a behavioural analytics platform, as address activity intensified.
  • Further, positive developments in Ripple fuel the bullish narrative of XRP.
  • SBI Holdings (Strategic Business Innovator Group) is working on a cryptocurrency fund that will invest in Bitcoin, Ethereum, Bitcoin Cash, and XRP. The announcement of the fund by the Japanese financial behemoth is a positive move for Ripple and is expected to boost the utility of the native asset XRP.

 (Source:FXStreet, https://news.bitcoin.com)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Dividend Stocks

Health and Human Services and Congressional Plans to CutDrug Prices Look Manageable by the Industry

Novartis is well positioned for steady long-term growth. Strong intellectual property supporting multi-billion-dollar products, combined with an abundance of late-pipeline products, creates a wide economic moat. While patent losses on anemia drug Exjade and cancer drug Afinitor will weigh on near-term growth, a strong portfolio of drugs along with a robust pipeline should ensure steady long-term growth.

Novartis’ drug segment is poised for long-term growth driven by new pipeline products and existing drugs. Novartis’ strategy to focus largely in areas of unmet medical need should strengthen the firm’s pricing power. Additionally, Novartis differentiates itself by its sheer number of blockbusters, including Entresto for heart failure, Cosentyx for immunology diseases and Tasigna for cancer. Also, it has generated a strong late-stage pipeline with recent launches of migraine drug Aimovig and cancer drug Kisqali. Despite the patent losses on Exjade and Afinitor (and potentially multiple sclerosis drug Gilenya), the combination of a strong pipeline of new products and a diverse, well-positioned operating platform should translate into steady growth.

Financial Strength

Using estimates from the Congressional Budget Office for the impact of HR3, we previously estimated that U.S. branded drug sales could fall 21% below our current forecasts if international price benchmarking were applied to Medicare and private plans, with up to a 40% impact if such a system were applied to all drugs (the plan would likely only apply to a basket of drugs) and if drug firms were not able to offset these prices with international price increases. Based on our prior analysis of rebates in Medicaid and the VA, the impact of domestic reference pricing could also be sizeable, as high as 20%, if applied to all of Medicare (assuming no offsets).

Upcoming congressional proposals on lowering drug pricing as well as a recent plan from the Department of Health and Human Services have put U.S. drug pricing policy back in the spotlight. Congress is reconvening and will work to pass a $3.5 trillion budget reconciliation package, and Politico reported that House Democrats plan to include Medicare drug price negotiation (along with other elements of the HR3 bill, which was originally introduced and passed in the House in 2019) in their budget reconciliation package.

Company Profile 

Novartis AG develops and manufactures healthcare products through two segments: Innovative Medicines and Sandoz. It generates the vast majority of its revenue from Innovative Medicines segment consisting global business franchises in oncology, ophthalmology, neuroscience, immunology, respiratory, cardio-metabolic, and established medicines. The firm sells its products globally, with the United States representing close to one third of total revenue.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
LICs LICs

Wilson Asset Management Reports Record Operating Profit and Maintains Final Dividend

Currently, last traded price is $2.345. Till June 2021 net profit is 266.62 Million while Revenue is 379.57 Million.

Till 31 July 2021, Pre – tax net tangible asset is $1.89 while post – tax net tangible asset is $1.93 and Annualised dividend yield is 7 percent.

Gross asset of Wilson Asset Management Capital Limited is 1,682.2 Million.

WAM Capital’s Investment portfolio has returned 16.6 percent p.a and their overall 22 years outperforming the market by 7.9 percent p.a.

WAM Capital Limited ((WAM)) reported a record operating profit before tax of $343.3 million for fiscal year 21 due to strong portfolio performance. In FY21, WAM’s investment portfolio increased 37.5 percent (before expenses, fees, and taxes). 

The final dividend was maintained at 7.75cps, fully franked, bringing the full year dividend to 15.5cps, fully franked. This is consistent with the full-year dividend for fiscal year 2020.

WAM offered the most appealing dividend yield for domestic equity LICs as of 31 July 2021, with a dividend yield of 7.01 percent despite trading at an 11.6 percent premium.

Company Profile 

WAM Capital Limited (WAM) is an Australia-based investment company, which is primarily an investor in equities listed on the Australian Securities Exchange. The Company’s investment objectives are to deliver a stream of fully franked dividends, provide capital growth and preserve capital. The Company engages in investing activities, including cash, term deposits and equity investments. The Company’s trading opportunities are derived from initial public offerings, placements, block trades, rights issues, corporate transactions (such as takeovers, mergers, schemes of arrangement, corporate spinoffs and restructures), arbitrage opportunities, listed investment companies (LIC) discount arbitrages, short selling and trading market themes and trends. Wilson Asset Management (International) Pty Limited is the Company’s investment manager.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Currencies Trading Ideas & Charts

Recent flash crash urges Bitcoin whales to buy it at a discount

 nearly 15% less than the previous day and reflecting a loss of more than $410 billion. A selling spree among the investors drove the prices of nearly every single coin, erasing the gains of the retail traders amidst the news of El Salvador’s first day accepting bitcoin as legal tender. This move resulted from the $4 billion cascading liquidations from the over-leveraged Bitcoin and Ethereum futures.

In the middle of the flash crash, El Salvadoran President Nayib Bukele remarked that the country took advantage of crashing prices to purchase 150 bitcoins in addition, boosting its total to 550 coins, which amounts to about $25 million. The correction in the Bitcoin market highlighted the need to book profits consistently along the rally. 

The Bitcoin fear and greed index, which is considered as an indicator of the overall sentiment of traders in the market, recently indicated ‘fear’. Analysts expect a potentially volatile period ahead for Bitcoin, as nearly 336,000 traders positions were liquidated in the crash. However, post Tuesday’s downfall, BTC is now on its road to recovery. Spent output ratios that look at profitability and losses taken over a particular time frame shows that the long-term holders have largely maintained their positions indicating the larger wallet moves were on-balance active short-term traders. On the contrary, it is observed by the analysts that the whales have been significantly buying BTC, increasing their holdings. Historically, whenever large wallet investors have increased their holdings and accumulated BTC, a price rally has followed. The proponents have claimed that if new buyers constantly inject capital in Bitcoin, it could break key resistance and set an all-time new record, further in 2021. Analysts expect Bitcoin to continue upwards climb and target the $57,000 level next.

About Bitcoin:

Bitcoin is the world’s first decentralized cryptocurrency- a type of digital asset that uses public-key cryptography to record, sign and send transactions over the Bitcoin blockchain.

Launched in 2009, bitcoin is the world’s largest cryptocurrency by market capitalization. Unlike fiat currency, bitcoin is created, distributed, traded, and stored with the use of a decentralized ledger system, known as a blockchain. Bitcoin’s history as a store of value has been turbulent; it has gone through several cycles of boom and bust over its relatively short lifespan. As the earliest virtual currency to meet widespread popularity and success, bitcoin has inspired a host of other cryptocurrencies in its wake.

(Source: FXStreet, Investopedia, Forbes)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

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Commodities Trading Ideas & Charts

APA’s Medium-Term Outlook Is Supported by Accretive Expansion Opportunities

Limited regulation, scale, and a superior skills base help it capitalise on gas demand growth and generate competitive advantages that warrant a narrow economic moat. However, gas market reform will weaken its competitive advantages. Fair value uncertainty is medium, as secure revenue is balanced by high gearing and limited transparency over customer contracts.

Infrastructure, primarily gas transmission and distribution, is the core business, generating more than 90% of group EBITDA. The rest comes from part-owned investments and asset management. The investments division owns stakes in smaller gas infrastructure companies, providing solid returns and giving some influence. The asset management division provides management, operating, and maintenance services to most part-owned companies, leveraging APA Group’s skills base to generate good returns outside the regulatory framework.

APA Group’s core strategy during the past decade has been to create an integrated east-coast gas transmission grid connecting multiple gas sources to multiple markets. This is now complete following numerous acquisitions and the firm is progressing a similar strategy in Western Australia, connecting to remote mine sites and towns. Expansion creates economies of scale and synergies from linking pipes together into a network with one manager.

Financial Strength

APA Group is in sound financial health. It carries a lot of debt, but this should be manageable given highly secure revenue. Net debt/EBITDA to fall to 5.5 times in fiscal 2023 as development projects complete and earnings start to flow. The firm’s average interest rate is around 4.8%, down substantially in recent years following the issue of the cheap debt to fund the WGP acquisition and expensive hedges rolling off on other debt. The recent refinancing of medium-term debt should reduce average interest rate to about 4.8% in fiscal 2022. Average debt maturity is long at more than seven years, and 100% of interest rates are fixed or hedged.

Our fair value estimate for APA Group is AUD 9.80 per security. Our valuation implies a forward fiscal 2022 enterprise value/EBITDA multiple of 12.5 times, with a distribution yield of about 5.4%. Expansion projects drive solid EBITDA growth of 4.8% on average for the next five years in our discounted cash flow model, while revenue growth for some existing assets is likely to be soft because of regulatory headwinds, gas market reform and some demand shifts.

Bulls Say’s

  • APA Group owns and operates an excellent portfolio of gas infrastructure assets. Its large footprint ensures it is at least partially exposed to growth anywhere in the country.
  • The east-coast gas grid provides improved reliability, greater flexibility, a wider range of services, and economies of scale over single pipelines.
  • Limited regulation allows stronger returns on investment than regulated peers, particularly from organic expansion. However, gas market reform will reduce its advantage.
  • Strong returns are possible from organic growth.

Company Profile 

APA Group is Australia’s largest gas infrastructure company with an extensive portfolio of transmission pipelines, distribution networks, and storage facilities. It is internally managed and has direct operational control over all assets. It owns minority stakes in a few smaller gas infrastructure companies and manages operations for most of these. The stapled securities comprise a unit in Australian Pipeline Trust and in APT Investment Trust.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Global stocks Shares

Qube reported solid FY 20 result and also made progress in the property monetisation process

Investment Thesis:

  •  The assets are attractive as well as strategically located.
  • Leveraged to improving economic growth (e.g. commodity markets, new passenger vehicle sales).
  • Improved margins on account of additional project work in future years.
  • Moorebank Logistics Park was successfully ramped up and offered logistics services at incremental margins.
  • Better cost outcomes and improved margins on account of technological advances (and automations) at its ports and operations.
  •  In order to supplement organic growth potential bolt-on acquisitions is done 
  •  The balance sheet position of Qube is sound enough.

Key Risks:

  • Excess capacity and pricing pressure because of Downturn in the domestic economy (or key end markets such as agriculture, retail)
  • Margin pressure due to cost pressures. 
  • Coronavirus outbreak leading to potential direct and indirect impacts.
  • Value destructive acquisition (dilutive to earnings and a distraction for management). 
  • Margin erosion because of competitive pressure. 
  • High competition in the logistics industry.
  • Market expectations are not met by QUB in achieving capacity utilization at Moorebank Logistics Park.

Key Highlights: Relative to the pcp:

  • QUB reported solid FY20 results reflecting record underlying earnings.
  • The firm majorly has four division-operating, property and patrick
  • Revenue increased by 7.9% to $2,032.4.
  • The increase in revenue was majorly driven by its operating and Patrick division.
  • The Operating Division experienced high volumes across most parts of the business with container, grain, forestry, motor vehicles and bulk volumes particularly strong, and the result also benefited from earnings from growth capex undertaken in the current and prior periods.
  • The operating division saw underlying revenue growth of by 12.5% to $2.0bn driven by Logistics, up by 8.5% to $860.3m and Ports & Bulk, up by 8.0% to $1,148.2m.
  • Property underlying revenue of $23.7m. The division made a loss of $2.1m
  •  In Patrick, underlying contribution from Qube’s 50% interest in Patrick of $41.3m
  • EBITA increased by 14.1 percent to $182.9 million.
  • The net profit after tax (NPAT) increased by 36.8% to $142.5. 
  •  NPATA was up 31.7 percent to $159.6.  
  • EPS was up by 16.7 percent at 8.4cps. 
  •  The Board declared a final dividend of 3.5cps (full-year dividend of 6.0cps, up 14.4%). 
  • The leverage ratio (ND/ND+E) of 29.2% is substantially below the goal range of 30-40% set by management.

Moorebank monetisation: 

QUB entered non-binding commercial terms to sell 100% of its interest in warehousing and property components of the Moorebank project (MLP project) to LOGOS for a total consideration of $1.67bn before tax, transaction costs and other adjustments. QUB will retain ownership of IMEX terminal and interstate terminal. Management noted “subject to the completion of the monetisation process, the Board will assess the appropriate use of the monetisation proceeds which is expected to include debt reduction, investment in accretive growth opportunities and potential capital management initiatives”.

Company Profile:

Qube Holdings Limited (QUB) is a diversified logistics and infrastructure firm that serves clients in both the import and export cargo supply chains. Ports & Bulk (integrated services, bulk material handling, and bulk haulage), Logistics (Australia’s largest integrated third-party container logistics provider), and Strategic Assets are the company’s three primary segments (investing and developing future infrastructure).

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Categories
Commodities Trading Ideas & Charts

Woodside Petroleum operating revenue increases by 31% buoyed by demand for LNG and oil

Investment Thesis:

  • Superior free cash flow breakeven price relative to peers have been generated by quality assets (NWS, Pluto, Australia Oil, Browse, Wheatstone) 
  • Focus on cost reduction and positioning of the business for lower oil price environment
  • Earnings improvement through improving oil and gas prices 
  • WPL well positioned to fulfil increasing LNG demand 
  • Strong balance sheet position
  • Good with free cash flow generation
  • Potential exploration success in Myanmar, Senegal, Gabon. 
  • Change in CEO could either result in some uncertainty around future strategy or it could also be an opportunity to refresh the strategy with a “fresh” set of eyes 

Key Risks:

  • Imbalance in supply and demand in global oil/gas markets
  • Low oil / LNG prices
  • Not meeting cost-out targets (e.g. reducing breakeven oil cash price)
  • Disruptions in production

Key Highlights:

  • WPL reported 31% increase in operating revenue, buoyed by higher realised prices mainly driven by the recovery in demand for LNG and oil
  • Underlying NPAT was up +17% 
  • Board declared an interim dividend of US 30cps (up +15% over pcp), representing a payout ratio of ~80% of underlying NPAT
  • Announcement of merger with BHP’s oil and gas business, which is expected to deliver cost synergies north of US$400m p.a. by leveraging combined capabilities and capital efficiency, creating a higher margin oil portfolio
  • Improvement in balance sheet with gearing declining -110bps over 2H20 to 23.3%, remaining within target range of 15-35% and free cash flow (FCF) was up +18% to $311m.
  • Appointment of Meg O’Neill as the new permanent CEO and managing director
  • Revenue generated by WPL segments are; Pluto contributes 47% of the total revenue, NSW contributes 26%, Australia Oil contributes 14% and Wheatstone contributes 13%.
  • EBITDA generated by WPL segment are; Pluto contributes 49% of the total EBITDA, NSW contributes 24%, Wheatstone contributes 15% and Australia Oil contributes 12%.

Company Description:

Woodside Petroleum Ltd (WPL) explores for and produces natural gas, liquefied natural gas, crude oil, condensate, naptha and liquid petroleum gas. WPL owns producing assets in the North-West Shelf (NWS) project, Pluto LNG and Australian Oil. WPL is currently developing Browse, Sunrise, Wheatstone, Grassy Point and Kitimat LNG. WPL is currently undertaking exploration activities in Myanmar, Senegal, Morocco, Gabon, Ireland, NZ and Peru.

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.