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COE’s results with production of 1.57 MMboe, up +31%; sales volumes of 2.02 MMboe, up +67%, and sales revenue of $95.4m, up +96%.

Shot of elegant smart businesswoman explaining a project to his colleagues with statistics on the computer on coworking place.

Investment Thesis:

  • Strong FY22 guidance provided by management. 
  • Sole will provide significant uplift in production and free cash flow. 
  • Sole’s volumes are mostly contracted out, which provides greater certainty at reduced exposure to price movements. 61% of COE’s 2P reserves (Proved and probable reserves) are under take-or-pay contracts, with uncontracted gas predominantly from 2024 onwards. 
  • Upside from COE’s exploration activity around Gippsland and Otway Basin. 
  • Strong management team led by CEO/MD David Maxwell, who has over 25 years industry / developing LNG projects with companies such as BG Group, Woodside Petroleum and Santos Ltd. 
  • Favorable industry conditions on the east coast gas market – with tight supply could lead to higher gas prices. 
  • Potential M&A activity – especially considering recent de-rating.

Key Risks:

  • Execution risk – Drilling and exploration risk.
  • Commodity price risk – movement in oil & gas price will impact uncontracted volumes. 
  • Regulatory risk – such as changes in tax regimes which adversely impact profitability. 
  • M&A risk – value destructive acquisition in order to add growth assets.
  • Financial risk – potentially deeply discounted equity raising to fund operating & exploration activities should debt markets tighten up due external macro factors.

Key Highlights:

  • COE’s management announced strong guidance relative to FY21: FY22 production guidance 3.0 – 3.4 MMboe (FY21: 2.63 MMboe); sales volume 3.7 – 4.0 MMboe (FY21: 3.01 MMboe); underlying EBITDAX $53 – $63m (FY21: $30m); capex of $24 – 28m (FY21: $32.3m).
  • COE achieved record results with production of 1.57 MMboe, up +31%; sales volumes of 2.02 MMboe, up +67%, and sales revenue of $95.4m, up +96%.
  • The +31% increase in total production to 1.57 MMboe, was driven by higher production from the Sole field and higher sales volumes contributed to a +163% increase in underlying EBITDAX to $25.5m.
  • COE was able to improve performance at Orbost Gas Processing Plant to drive earnings: Underlying EBITDAX up +163% to $25.5m; underlying net loss after tax of $6.0m (H1 FY21: $17.4m loss).
  • Step-change in total company gas production: H1 FY22 average daily rate of 50TJ/day, up +39% relative to 1H21 average daily rate of 36 TJ/day.
  • Athena Gas Plant sales began after successful commissioning.
  • COE retained a solid balance sheet with $92.2m in cash reserves at 31 December 2021.

Company Description:

Cooper Energy Ltd (COE) is an oil & gas exploration company focusing on its activities in the Cooper Basin of South Australia. The Company’s exploration portfolio includes six tenements located throughout the Basin. Gas accounts for the major share of the Company’s sales revenue, production and reserves. COE’s portfolio includes: (1) gas production of approximately 7PJ p.a. from the Otway Basin, most of which comes from the Casino Henry gas project which it operates. (2) COE is developing the Sole gas field to supply 24 PJ of gas p.a. from 2019. (3) Oil production of approximately 0.3 million barrels p.a. from low-cost operations in the Cooper Basin.   

(Source: Banyantree)

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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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Daily Report

Morning Report Global Markets Update – 21 March 2022

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Australian Market Outlook – 21 March 2022

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Shanghai Market Outlook – 21 March 2022

Peoples Republic of China flag, stock market, exchange economy and Trade, oil production, container ship in export and import business and logistics.
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Japan Market Outlook – 21 March 2022

JAPÓN BOLSA:KMA06. TOKIO (JAPÓN), 03/01/2018.- Un grupo de mujeres usan kimono durante la ceremonia de apertura de la Bolsa de Tokio de Japan Exchange Group, Inc. de la primera sesión comercial de Año Nuevo en 2018 en la Bolsa de Tokio, en Tokio, (Japón) hoy, jueves 4 de enero de 2018. EFE/KIMIMASA MAYAMA
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Technology Stocks

Strong 2022 Outlook Motivates Us to Lift Eaton’s Fair Value Estimate

Business Strategy and Outlook

 Eaton is a specialized producer of highly engineered products and services. These offerings are designed to solve customer pain points in vital portions of the world’s infrastructure. We believe Eaton has mostly positioned its portfolio in profitable niches that should benefit from secular trends like energy transition and electrification, to propel long-term growth. Eaton’s portfolio can be divided into two portions: it’s more legacy industrial sector and its electrical sector. 

Industrial serves a variety of end markets and houses the aerospace and vehicle segments, while electrical consists of the Americas and global segments. Eaton’s products mostly compete in differentiated niches of its end markets, which we think reduces the risk of commoditization. Moreover, many of its end-market solutions are mission-critical, like fuel pumps in aerospace applications or uninterruptible power supply in hospitals. Others lower customers’ total cost of ownership or compete in industries with a high cost of failure.

 In 2018, the company created a new segment, eMobility, which aims to take advantage of the secular trend toward electric vehicles. It is believed that the company can leverage its technology core competency from its electrical sector while taking advantage of its OEM relationships in its vehicle segment. Of all of Eaton’s businesses, the most bullish trend is in its electrical sector and its aerospace business, given data center growth, necessary upgrades to aging infrastructure, and the eventual commercial aerospace recovery.

After revisiting the Eaton thesis and came away far more bullish on the company after management made two prudent capital allocation decisions to sell the commoditized and secularly challenged businesses in lighting and hydraulics. The recent bolt-ons, particularly Tripp Lite, given growth potential in the data center market are particularly liked. It is now believed that Eaton will likely hit all its upward revised targets by 2025, save for its eMobility margin aspirations, given continued investment needs there. Nonetheless, the market is too generous in its assessment of Eaton based on fundamental, intrinsic valuation.

Financial Strength

Eaton is on a decent financial footing. Eaton’s credit rating had steadily improved under Craig Arnold’s stewardship to single A, but the firm is slightly more leveraged now from a net debt/EBITDA standpoint at 2.4 times as a result of the coronavirus pandemic. Nonetheless, it is not a concern as these results are in line with peers, and expect this ratio will come down to under 2 times by 2023 as the firm’s growth returns. It is estimated that 25% of cash on the balance sheet is needed to support Eaton’s global operations, though it is also noted that Eaton is a very strong generator of free cash flow. Further, the firm’s interest coverage ratio (EBIT/interest) is nearly 14 times, which when considered is a strong indicator that the company can safely meet its obligations. Given acquisitions announced at the end of 2020, Eaton will be out of the merger and acquisition market in 2021, given its dividend and share repurchase commitment, but consider the company financially healthy enough to pursue acquisitions once more in 2022 if it should prefer this route over repurchases. At year-end 2020, the company’s pension and other postretirement liabilities’ shortfall totalled just over $1.6 billion, which detracts about $4 from our fair value estimate. Nonetheless, this effect may be overstated in a rising interest-rate environment.

Bulls Say’s

  •  Eaton’s portfolio moves will create lots of value for shareholders and transform Eaton from a 10% ROIC generator to one in the mid-teens. 
  • Investors should welcome many of the secular trends Eaton is positioned to capture, including energy transition, digitization, and electrification as well as the commercial aerospace recovery. 
  • The market could rerate Eaton with an even higher multiple if Congress passes an infrastructure bill. 

Company Profile 

Eaton is a diversified power management company operating for over 100 years. The company operates through various segments, including electrical products, electrical systems and services, aerospace, vehicle, and most recently eMobility. Eaton’s portfolio can broadly be divided into two halves. One part of its portfolio is housed under its industrial sector umbrella, which serves a large variety of end markets like commercial vehicles, general aviation, and trucks. The other portion is Eaton’s electrical sector portfolio, which serves data centers, utilities, and the residential end market, among others. While the company receives favorable tax treatment as a domiciliary of Ireland, most of its operations take place in the U.S.

(Source: MorningStar)

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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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Dividend Stocks Expert Insights

Star Entertainment Group reflects gross revenue declined -22% to $580m, EBITDA declined -87% to $29m and NPAT loss of $74m

Investment Thesis:

  • Additional cost measures announced to support earnings.
  • Monopolies in the casino industry in SGR’s operating geographies and is one of the market leaders in other games such as slots.
  • Economic moat in the nightlife landscape in Sydney given regulatory environment (such as lock-out laws).
  • Diversified business base across different types of entertainment, hotels, retail stores and food & beverage establishments.
  • Strong tourism growth once borders reopen is expected to a tailwind for SGR.
  • Lower AUD could improve international spending in domestic markets.
  • Domestic table games segment remains strong.

Key Risks:

  • Weakening VIP segment, potentially making Sydney less viable.
  • Further deterioration of consumer spending and household discretionary income 
  • Regulatory risks e.g. repeal of lockout laws could increase competition in the nightlife landscape in Sydney.
  • Establishment of new Crown casino in Sydney will increase competition (especially amongst VIP customers) and could potentially dismantle SGR’s monopoly in Sydney.
  • Win-rate risk (if the casinos have a much lower win-rate than the mathematical expected value).
  • Potential scandals.

Key Highlights:

  • On a normalised basis, gross revenue declined -22% to $580m, EBITDA declined -87% to $29m and NPAT was a loss of $74m, impacted by Covid-19 related property shutdowns, operating restrictions, and border closures. Statutory EBITDA of $31m (pre significant items) was down -87% and statutory net loss was $74m (post significant items) vs profit of $49.7m in pcp.
  • Operating expenses increased +23.6% to $401m, reflecting Covid-19 related inefficiencies and investment in staff to position the properties for re-opening.
  • Net debt increased by +4% over 2H21 to $1.2bn with net leverage increasing to 5.2x, impacted by property shutdowns. However, SGR received full waiver of debt covenants for the December 2021 testing date and an amendment of the covenant ratios for the June 2022 testing date.
  • SGR has liquidity of $520m in cash and undrawn facilities.
  • Asset sale continued (to release capital from non-core or low-yielding assets), with SGR selling VIP jet for ~$40m, entering into agreement for the sale of an interest in the Treasury Brisbane assets for $248m (ex GST) and continuing work on the potential sale and leaseback (or similar transaction) of a minority holding in The Star Sydney property. 
  • Operating cashflow declined -96% to $11m with cash collection down -90% to 45%.
  • Capex of $125-150m (FY23 guidance is ~$175m).
  • D&A expense of ~$205m.
  • Net funding costs of $50-55m.
  • JV equity contributions of ~$35m, primarily relating to Gold Coast Tower 2.
  • Cost pressures to continue in 2H22 driven by wages, insurance, energy, Covid-19 related challenges and further investment in headcount in regulatory and compliance functions.
  • Trading Update – in the period from 1 January 2022 to 13 February 2022, total revenue was up +7% YoY with Sydney revenue up +20% (gaming revenue up +17% and non-gaming revenue up +46%) and Queensland revenue is down -6% (gaming revenue down -12% and non- gaming revenue up +32%) with Omicron impact peaking in mid-January and progressively easing. 

Company Description:

The Star Entertainment Group Limited, an integrated resort company, provides gaming, entertainment, and hospitality services in Australia. The Company operates through three segments: Sydney, Gold Coast, and Brisbane. It owns and operates The Star Sydney casino, which includes hotels, apartment complex, restaurants, and bars; The Star Gold Coast casino, which consists of hotels, theatre, restaurants, and bars; and Treasury casino in Brisbane that comprises hotel, restaurants, and bars. The company also manages the Gold Coast Convention and Exhibition Centre. The company was formerly known as Echo Entertainment Group Limited and changed its name to The Star Entertainment Group Limited in November 2015.

(Source: Morningstar)

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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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Dividend Stocks

Tassal Group Board declared an interim dividend of 8cps, up +14.3%, in line with a target pay-out ratio of at least 50% of Operating NPAT.

Investment Thesis:

  • Number one player in the domestic market (approximately 50% market share), with only one major competitor (Huon Aquaculture Group). This could see rational pricing behavior, which should be positive for both companies. 
  • High barriers to entry (assets, desired temperatures and regulatory licences are difficult to obtain).
  • Initiatives like selective breeding programs and investments in infrastructure appear to be paying dividends, with more recent generations of TGR’s salmon showing more robust growth than their predecessors. 
  • Given the complex nature of salmon farming, TGR is unlikely to have its dominant position as an Australian leading salmon farmer seriously threatened in the foreseeable future.
  • Addition of prawns into TGR’s product portfolio brings diversification benefits to the Company’s risk profile.
  • Growth in prawns represents material upside for group earnings.

Key Risks:

  • Impact on production due to adverse weather conditions and diseases. 
  • The De Costi subsidiary presents an opportunity for diversification; however, execution and competitive risks remain. 
  • Potential review of chemical colouring in salmon may lead to further negative publicity and undermine demand for salmon. 
  • Cost pressures or cost blowout could deteriorate margins significantly given the large cost base relative to earnings (EBITDA).
  • Irrational competitive behaviour (domestic and international markets).
  • Negative media reports on the sustainability of the Tasmanian salmon industry.
  • Regulatory risks regarding Federal, State and Local laws and regulations regarding the leases, licenses, permits and quotas which may affect TGR’s operations.

Key Highlights:

  • TGR’s operating EBITDA was up +14.1% to $89.5m, driven by strong revenue growth of +43.3% to $419.1m, but partially offset by lower EBITDA $/kg due to Grocery tenders in late FY21 and a material increase in supply chain costs.
  • Operating cashflow of $86.99m, was up 110.2% and more aligned with operating EBITDA.
  • Revenue of $419.14m, up +43.3%.
  • Operating cash flow of $86.99m, up +110.2%
  • Underlying EBIT of $50.01m, up +6.9%.
  • Underlying NPAT of $31.18m, up +10.3%.
  • The Board declared an interim dividend of 8cps, up +14.3%, in line with a target payout ratio of at least 50% of Operating NPAT.
  • Leverage (Bank debt / Operating EBITDA) reduced from 2.55x to 2.37x as cash was used to lower debt and growth in EBITDA (in line with operating cashflow). Debt service cover was stable at 2.80. Gearing (Net debt/ Equity) reduced to 38.0% from 39.7%.
  • TGR retained prudent credit metrics with significant headroom to banking covenants.
  • TGR has substantial headroom available in debt facilities with $160.1m in undrawn debt facilities and cash of $43.1m. 
  • Capex fell to $46.0m (versus 1H21: $67.7m) as TGR’s major investment program rolled off.

Company Description:

Tassal Group (TGR) is Australia’s largest vertically integrated seafood/aquaculture company. Based in Tasmania, TGR is engaged in hatching, farming, processing, sale and marketing of Atlantic salmon and ocean trout. Tassal is also undergoing investments to enter the prawn’s market. The company’s products are distributed in Australia, Japan and other international markets. 

(Source: Banyantree)

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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Technology Stocks

Carsales.com Ltd (CAR) reported strong 1H22 results & Balance sheet position; Declared fully franked dividend of 25.5cps

Investment Thesis

  • Leading market position in online car classifieds. 
  • Overseas expansion provides new growth opportunities from the challenging core Australian market. 
  • Heavily reliant on two growth stories (South Korea and Brazil).
  • Diversified geographic coverage.
  • Bolt-on acquisitions provide opportunities to supplement organic growth.
  • The Company can sustain high single-digit and low double-digit revenue growth. 
  • CAR’s move into adjacent products and industries. 
  • Increasing pricing in South Korea to boost margins.
  • Looking to take more of the car buying experience online with dealers (i.e. increasing its total addressable market). 

Key Risk

  • Rich and demanding valuation.
  • Competitive pressures, that is car dealer driven substitute platform or the No. 2 & 3 player gain ground on CAR.
  • Motor vehicle sales remain subdued.  
  • Value destructive acquisition / execution risk with international strategy.
  • Not immune from broader downturn in economy (consumer likely to delay a significant purchase in time of uncertainty). 

1H22 Results Highlights. Relative to the pcp: 

  • Look-through revenue of $282m, up +30% and Look-through EBITDA was up +15% to $149m, driven by strong domestic results in the Private and Media segments, growth in Encar in South Korea and good cost discipline. 
  • Adjusted NPAT of $89m up 20% and adjusted EPS of 31.4c. 
  • CAR reported strong cash flow with Reported EBITDA to operating cash flow conversion of 100%. The Board declared a fully franked interim dividend of 25.5cps, consistent with longstanding dividend payout policy of 80%.

Company Profile

Carsales.com Ltd (CAR), founded in 1997, operates the largest online automotive, motorcycle and marine classifieds business in Australia. Carsales is regarded as one of Australia’s original disruptors and has expanded to include a large number of market-leading brands. The Company employs over 800 and develops world leading technology and advertising solutions in Melbourne. CAR has also expanded to numerous global markets, such as South Korea, Brazil, and other countries in Latin America.

  • 1H22 Results Highlights. 

 (Source: Banyantree)

  •                    Given the

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Commodities Trading Ideas & Charts

Rio Tinto Ltd reported strong FY21 results reflecting strong earnings with strong balance sheet position

Investment Thesis 

  • One of the largest miners in the world with a competitive cost structure.
  • Tier 1 assets globally, which are difficult to replicate. 
  • Highly cash generative assets with attractive free cash flow profile. 
  • Shareholder return focused – ongoing capital management initiatives.  
  • Commodities price surprises on the upside (potential China stimulus to combat Coronavirus impact). 
  • Strong balance sheet position.
  • Electrification and light-weighting trends in automobile industry provide long-term growth runway for aluminium demand.

Key Risks

  • Further deterioration in global macro-economic conditions.
  • Deterioration in global iron ore/aluminium supply & demand equation.
  • Production delay or unscheduled site shutdown.
  • Natural disasters such as Tropical Cyclone Veronica.
  • Unfavourable movements in AUD/USD.
  • Company not achieving its productivity gain targets. 

FY21 Results Highlights. Relative to the pcp: 

  • $25.3bn net cash generated from operating activities was +60% higher than FY20 driven by higher prices for RIO’s key commodities. This flowed through to +88% YoY change in free cash flow of $17.7bn, despite a +19% increase in capex to $7.4bn. 
  •  $21.1bn of net earnings, up +116%, mainly reflecting higher prices, the impact of closure provision increases at Energy Resources of Australia (ERA) and other non-operating sites, $0.5bn of exchange and derivative gains and $0.2bn of impairments. $7.4bn capex was made of $0.6bn of growth capital, $3.3bn of replacement capital and $3.5bn of sustaining capital, funded from internal sources, except for Oyu Tolgoi underground development, which is project finance. 
  • $37.7bn underlying EBITDA was up +58% on a margin of 57%. 
  •  $21.4bn underlying earnings (or underlying EPS of US1,321.1cps) were up +72%. 
  •  RIO retained a strong balance sheet with $1.6bn of net cash at FY21-end, versus net debt of $0.7bn at the start of the year, reflecting the free cash flow of $17.7bn, partly offset by $15.4bn of cash returns to shareholders. 
  •  The Board declared a record $6.7bn final ordinary dividend (or US417cps) and $1.0bn final special dividend (or US62cps). This brings the full-year dividend to $16.8bn, equivalent to US1,040cps and 79% of underlying earnings.

Company Profile

Rio Tinto Limited (RIO) is an international mining company with operations in Australia, Africa, the Americas, Europe and Asia. RIO has interests in mining for aluminium, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock and diamonds. 

  • FY21 Results Highligh

(Source: Banyantree)

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.