Financial Markets - Investor Desk

Investment Thesis:

Trading on undemanding 1-yr valuation multiples – 4x PE-multiple, 4.4% dividend yield (excluding additional capital management) and 2.4x EV/EBITDA multiple.
Clearly articulated capital management framework, which should lead to additional capital management in CY21.
Improving the demand picture for oil, which should be supportive of oil prices.
Given the disruption in oil markets, there has been significant underinvestment in new oil projects – the supply picture could see a deficit if demand picks up faster than expected.
Management is targeting to be net zero carbon emissions by 2050.
Low carbon strategy will bring opportunities.

Key Risks:

Geo-political and macroeconomic risks.
Execution risk on low carbon future strategy.
Significant collapse in the oil price.
Adverse regulatory policies.

Key Highlights:

FY22 outlook. Management expects; Reported upstream production to be broadly flat y/y despite the absence of production from BP’s Russia incorporated JVs, however, should be slightly higher y/y on an underlying basis. Other businesses & corporate underlying annual charge to be $1.2-1.4bn.
Depreciation, depletion and amortization to be flat y/y.
Underlying ETR to be ~35% (vs prior guidance of ~40%), however, remaining sensitive to the impact that volatility in the current price environment may have on the geographical mix of profits and losses. (5) Capex of $14-15bn.
Divestment and other proceeds of $2-3bn billion.
Gulf of Mexico oil spill payments to be ~$1.4bn (pre-tax) including the $1.2bn (pre-tax) paid during 2Q22.
To use 60% of surplus cash flow for share buybacks and allocate the remaining 40% to further strengthen the balance sheet.
Continue delivering share buybacks of $4.0bn per annum and having capacity for an annual increase in the dividend per ordinary share of ~4% through FY25, subject to Brent remaining ~$60/barrel.

Capital management – debt reduction continues + further share buybacks announced. Net debt fell for the ninth successive quarter to reach $22.8bn at the end of 2Q22, down -17% q/q and -30% y/y, primarily due to stronger free-cash generation driven by elevated commodity prices and proceeds from divestments, with the Company achieving $14.7bn of proceeds from divestitures vs target of $25bn by 2025.
The Board increased 2Q22 dividend by +10% to 6.006 cps and executed share buybacks of $2.3bn, completing $2.5bn programme announced in 1Q22, and further announced intention to execute a $3.5bn share buyback in 3Q22 given strong surplus cash flow of $6.6bn in 2Q22.
Continued disciplined allocation of investment to low carbon and convenience and mobility businesses and to resilient hydrocarbons with management anticipating FY22 capex of $14-15bn and FY23-25 capex of $14-16bn with $5-7bn/year allocated to low carbon and convenience and mobility and $9-10bn/year allocated to resilient hydrocarbons.

Company Description:

Megaport Ltd (MP1) is a software-based elastic connectivity provider – that is, it is a global Network as a Service (NaaS) provider. MP1 develops an elastic connectivity platform providing customers interconnectivity and flexibility between other networks and cloud providers connected to the platform.

(Source: Banyantree)

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