Category: Financial Markets
the large resource base, low-cost position, and the company’s record. Barring a dip in fiscal 2024 and 2025, when the company assumes Telfer exhausts, Newcrest expects gold production to remain steady around 2.0 million ounces a year for the next decade based on the projects it has in hand. The outlook for copper production is similarly relatively flat, around 140,000 tonnes a year, but should step up from around 2029 to over 170,000 tonnes a year. Neither outlook–for gold or copper production–sounds too exciting. But beneath that apparent steadiness, the forecasts show how far Newcrest has come to offset the inevitable decline in grade at Cadia and the possible closure of Telfer.
Company’s Future Outlook
Our AUD 29.50 fair value estimate for Newcrest after incorporating the refined development plans for Havieron and Lihir. However, we continue to incorporate it separately into our fair value estimate, and the latest prefeasibility study supports our estimated standalone valuation of about AUD 2.50 per share, which is less than 10% of our overall fair value estimate. The company expects all-in sustaining costs to roughly have by fiscal 2030. In part, that depends on the copper price; Newcrest assumes USD 3.30 per pound longer term, which is above our USD 2.50 per pound assumption from 2025, but nevertheless we expect the company to remain a low-cost gold producer and well placed relative to peers.
We think these deposits have been somewhat forgotten by the market, but they contribute just over 10% to our fair value estimate, and we think the market could reasonably quickly be reminded of the valuable optionality they bring. From the base cases that Newcrest outlined for Telfer, Havieron, and Red Chris, we think the upside potential at Red Chris is likely to be the most substantial of the three, but it’s also longer-dated. The transition from lower-grade open-pit ore to bulk underground mining is expected
Company Profile
Newcrest is an Australia-based gold and, to a lesser extent, copper miner. Operations are predominantly in Australia and Papua New Guinea, with a smaller mine in Canada. Cash costs are below the industry average, underpinned by improvements at Lihir and Cadia. Newcrest is one of the larger global gold producers but accounts for less than 3% of total supply. Gold mining is relatively fragmented.
(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.
NJR’s regulated utility business will continue to produce more than two thirds of earnings on a normalized basis for the foreseeable future as New Jersey’s need for infrastructure safety and decarbonization investments provide growth opportunities. NJR’s constructive regulation and customer growth has produced an impressive record of earnings and dividend growth.
NJR’s gas distribution business faces a potential long-term threat from carbon-reduction policies. To address that threat, NJR plans to invest $850 million in its solar business in 2021-24. These projects support aggressive renewable energy goals in New Jersey and other states. NJR also is well positioned to invest in hydrogen and biogas. NJR’s $367.5 million acquisition of the Leaf River (Mississippi) Energy Center in late 2019 paid off big in early 2021 when extreme cold weather allowed NJR to profit from its gas in storage.
Company’s Future Outlook
Our utility earnings growth estimate assumes 1% annual customer growth and $1 billion of capital investment in 2022-24, in line with management’s plan. NJR has maintained one of the most conservative balance sheets and highest credit ratings in the industry. We forecast an average debt/total capital ratio around 55% and EBITDA/interest coverage near 5 times on a normalized basis after a full year of earnings contributions from its midstream investments. NJR’s $260 million equity raise in fiscal-year 2020 will primarily go to fund the Leaf River acquisition and midstream investments.
In mid-2019, it issued $200 million of 30- and 40-year first mortgage bonds at interest rates below 4%, among the lowest rates of any large U.S. investor-owned utility at the time. The success of the nonutility businesses and divesture of the wind investments also brought in cash to support its $2.5 billion of total investment in 2020-22. NJR will probably have to raise up to $700 million mostly through debt to help finance what we estimate will be $2 billion of capital investment in 2022-24.NJR’s board took a big step by raising the dividend 9% to $1.45 per share annualized in late 2021.
Bulls Say’s
- NJR’s customer base continues to grow faster than the national average and includes the wealthier regions of New Jersey.
- NJR raised its dividend 9% for 2022 to $1.45 per share, its 28th increase in the last 26 years.
- NJR’s distribution utility has received two constructive rate case outcomes and regulatory approval for nearly all of its investment plan since 2016.
Company Profile
New Jersey Resources is an energy services holding company with regulated and non regulated operations. Its regulated utility, New Jersey Natural Gas, delivers natural gas to 560,000 customers in the state. NJR’s non regulated businesses include retail gas supply and solar investments primarily in New Jersey. NJR also is an equity investor and owner in several large midstream gas projects.
(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.
Earnings are dominated by energy generation (wholesale markets), with energy retailing about half the size. Strategy is heavily influenced by government energy policy, such as the renewable energy target.
AGL has proposed a structural separation into two businesses; a multi-product energy retailer focusing on carbon neutrality and an electricity generator that will own AGL’s large fleet of coal fired power stations among other assets. At this stage, the announced split is only an internal separation, with more details regarding the future governance, capital structure, and asset allocation expected by June 2021.
Low-cost electricity generators and gas producers can achieve an economic moat via low-cost production, as AGL has via its low-cost coal-fired generation plants. Wholesale electricity prices are under pressure from falling gas prices, government initiatives to reduce utility bills, and new renewable energy supply. These headwinds are likely to keep AGL’s earnings falling into fiscal 2023.
Financial Strength:
The fair value estimate for AGL is AUD 14.00 per share, which is implied by the fiscal 2022 price/earnings multiple of 32 and an enterprise value/EBITDA multiple of 9. At this valuation, the forward dividend yield is expected to be 2.3% unfranked, with strong long-term growth as earnings recover. Also, the historical dividend yields generated by AGL are phenomenal.
AGL Energy is in reasonable financial health though banks are increasingly reluctant to lend to coal power stations. From 1.4 times in 2020, net debt/EBITDA is expected to rise to 2.1 times in fiscal 2022. Funds from operations interest cover was comfortable at 12.8 times in fiscal 2021, comfortably above the 2.5 times covenant limit. AGL Energy aims to maintain an investment-grade credit rating. To bolster the balance sheet amid falling earnings and one-off demerger costs, the dividend reinvestment plan will be underwritten until mid-2022. This should raise more than AUD 500 million in equity. Dividend payout ratio is 75% of EPS.
Bulls Say:
- As AGL Energy is a provider of an essential product, earnings should prove somewhat defensive.
- Its balance sheet is in relatively good shape, positioning it well to cope with industry headwinds.
- Longer term, its low-cost coal-fired electricity generation fleet is likely to benefit from rising wholesale electricity prices.
Company Profile:
AGL Energy is one of Australia’s largest retailers of electricity and gas. It services 3.7 million retail electricity and gas accounts in the eastern and southern Australian states, or about one third of the market. Profit is dominated by energy generation, underpinned by its low-cost coal-fired generation fleet. Founded in 1837, it is the oldest company on the ASX. Generation capacity comprises a portfolio of peaking, intermediate, and base-load electricity generation plants, with a combined capacity of 10,500 megawatts.
(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.
