Tag: Commodities

Business Strategy & Outlook

Viva, along with Ampol, BP and Mobil, is a rare breed of vertically integrated Australian refined fuel supplier. The Australian downstream petroleum industry runs from sourcing, transporting and storing crude oil, refining that crude into marketable products or directly sourcing imported refined product, and then transporting refined products for sale to retail and commercial customers. Refined products are mostly used in the transport sector, including commercial and private motoring, aviation, marine, and other transport demand. The Australian market equates to approximately 60 billion litres of product, with road use the largest segment at over 50%, followed by aviation at 14% and industry at 12%. Coronavirus notwithstanding, volumes in the Australian fuels market grow at close to rates in GDP, with solid increases in diesel and jet fuel consumption offsetting a slow decline in petrol.  There’s a comparatively steady Australian refined fuels demand growth of 1.5% per year.

Viva is Australia’s second-largest vertically integrated refined transport fuel supplier, delivering over 14.5 billion litres of refined product annually or approximately 24% of national requirement. Viva is vertically integrated because it refines, supplies and markets fuel to customers. Few companies refine fuel locally with much of Australia’s refining capacity shut in recent decades, unable to compete with Asian mega-refineries. There are only four refineries remaining including Viva’s Geelong in Victoria. Geelong converts imported and locally sourced crude oil into gasoline, diesel, jet fuel and lubricants. These are then distributed, along with directly imported products, into the retail channel via supply channels. The Geelong refinery is one of the most complex in the country due to its greater ability to produce higher value products. Against the sanguine outlook for the refined fuels industry, there are a number of concerns. These include the potential for heightened competition, driving lower margins given the entrance of new players. Further, investing in older and far smaller refineries than Asian mega-cousins is a potential money pit.

Financial Strengths

First-half net operating cash flow increased 173% to AUD 678 million, with strong cash generation across the segments though inclusive of favorable inventory drawdown. This supports future investment and dividend payments, with the balance sheet moving to an AUD 324 million net cash position at end-June 2022 versus AUD 95 million net debt at end-December 2021. Viva to retain a relatively ungeared balance sheet. Viva intends to buy Coles Express for AUD 300 million in the first half of 2023. The consideration will be funded entirely out of existing cash reserves and debt facilities. Viva is to retain a modestly leveraged balance sheet even after the acquisition, sub-20% gearing and maximum sub-0.5 net debt/EBITDA, assuming a 65% payout ratio. The strong status is despite returning AUD 680 million in aftertax Viva Energy REIT sale proceeds in full to shareholders in 2020 and making a AUD 100 million capital return in 2021. The solid free cash flows in the foreseeable future, growing to over AUD 350 million by 2025, which should comfortably support Viva’s target dividend payout ratio of between 50% and 70% of underlying distributable NPAT.

Bulls Say

• Viva boasts significant refined fuel distribution, supplying around 24% of Australia’s national requirement; second only to Ampol.
• Australia’s fuel demand continues to grow at low single digits as population growth and rising aviation use offset increasing vehicle fuel efficiency gains.
• While not sufficient to warrant awarding an economic moat, Viva’s pipeline and terminal infrastructure furnish competitive advantages–notably the efficient scale with its jet fuel pipeline supplying Sydney Airport.

Company Description

Viva is Australia’s second-largest vertically integrated refined transport fuel supplier. Viva is the second-most-significant pipeline owner, and at approximately 1,155 locations, Viva supplies the third-largest number of retail sites in Australia behind Ampol at approximately 1,985 and BP at 1,400. Vitol bought Shell’s Australian downstream operations in 2014, and renamed them Viva Energy. Viva subsequently bought Shell’s Australian aviation operations and a 50% investment in Liberty Oil. In 2016, Viva sold (and leased back) a portfolio of its retail sites to Viva Energy REIT and listed Viva Energy REIT on the ASX. It has since sold its entire REIT stake for AUD 734 million.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

TC Energy faces many of the same challenges as Canadian pipeline peer Enbridge but also offers important contrasts. Both firms offer a 5%-7% growth profile and a utility like 95%-98% of earnings that are highly regulated or contracted, with several years of project backlog, despite Enbridge largely focusing on oil assets, while TC’s focus is natural gas. However, any major new pipeline project for either firm will face substantial stakeholder challenges from a legal, regulatory, or community perspective, raising the risks and costs. The most critical differences between Enbridge and TC Energy arise from their approaches to energy transition, though TC Energy has made good progress here in 2022. Canadian carbon emissions taxes are expected to increase to CAD 170 a ton by 2030 from CAD 40 today, meaning it is critical that TC Energy, with its natural gas exposure, follow Enbridge’s approach to rapidly reduce its carbon emission profile and continue to pursue projects like the Alberta Carbon Grid, which will be able to transport more than 20 million tons of carbon dioxide. These taxes potentially increase costs for Canadian pipes compared with U.S. pipes but also make hydrogen a viable alternative to gas-powered electricity generation by 2030 in Canada, presenting an emerging threat. 

TC Energy recently introduced targets to reduce its Scope 1 and 2 intensity by 30% by 2030 and reach net zero by 2050, which is a start. In addition, Enbridge’s backlog is more diversified across its businesses already, and it already has a more material renewables business, including hydrogen, renewable natural gas, and wind efforts. While the renewables business lacks an economic moat today, it is an important area of investment for TC Energy that it needs to pursue. The renewables investments can compete for capital across the rest of the portfolio, generating reasonable returns on capital, allowing the overall enterprise to adapt to the markets as they evolve. As a result, TC Energy’s Bruce Power business to be a critical area of investment going forward.

Financial Strengths

TC Energy carries significantly higher leverage than the typical U.S. midstream firm, with current debt/EBITDA well over 5 times. Its long-term target is in the high 4s, again materially higher than peers which are generally targeting leverage of 3-4 times. Still, the high degree of leverage is supported by the highly protected nature of its earnings stream. As capital spending declines over the next few years to around CAD 3.7 billion in 2026, TC Energy to currently reach the low 5s, not quite reaching its target. A planned asset sale program of CAD 5 billion-plus is now in place to achieve 4.75 times leverage ratio by 2024, but it is likely that more asset sales will be needed if the leverage ratio is to reach the high 4s. Lower capital spending would move this date forward materially. Beyond the high leverage, TC Energy is also unusual in that it will continue to rely on the capital markets to meet about 20% of its expected capital expenditures over the next few years or potentially asset sales, meaning that some projects on a regular basis will depend on the health of the capital markets. Midstream peers are largely transitioning to generating free cash flow after distributions or dividends, and in some cases, it considered the shift to be permanent. TC Energy has outlined plans to spend about CAD 9.6 billion in 2023, though another CAD 1 billion to allow for additional Coastal GasLink overruns. About CAD 1.5 billion-CAD 2 billion is maintenance spending on its pipelines, and 85% of this is recoverable due to being invested in the rate base. ESG-related opportunities such as using renewable power to power its own operations or seeking carbon capture efforts would be on top of this spending. TC’s dividend growth remains prized by its investors, and 3%-4% growth going forward is easily supportable under the firm’s 60/40 framework.

Bulls Say

• TC Energy has strong growth opportunities in Mexican natural gas as well as liquefied natural gas. 
• The company offers virtually identical growth prospects and a protected earnings profile to Enbridge but allows investors to bet more heavily on natural gas. 
• The Canadian regulatory structure allows for greater recovery of costs due to project cancelations or producers failing compared with the U.S.

Company Description

TC Energy operates natural gas, oil, and power generation assets in Canada and the United States. The firm operates more than 60,000 miles of oil and gas pipelines, more than 650 billion cubic feet of natural gas storage, and about 4,200 megawatts of electric power.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

Genesis operates a mix of thermal (coal and gas) and hydro generation, with total annual production of approximately 7,000 GWh. The company’s hydro generation provides it with low-cost generation during times when there is sufficient rainfall and/or snowmelt. Conversely hydro generation can fall sharply when inflow to the firm’s lakes recedes because of insufficient rainfall. During such times, production from its thermal power plants can be ramped up to make up for the shortfall in hydro generation. Spot prices can increase dramatically during periods of low rainfall, reflecting the demand-supply mismatch caused because of lower nationwide energy output. Such times tend to favor Genesis as the excess generation is sold at higher prices. Consequently, Genesis’ profitability and margins can increase during periods of low rainfall and high electricity prices. 

Genesis hedges its gas requirements by holding a 46% stake in New Zealand’s Kupe gas field. Under the current contract, Genesis is obligated to purchase the entire natural gas output from Kupe. This provides the firm with a reliable supply of gas to power its thermal plants and also underpins Genesis’ dual-fuel offering to its customer base. Genesis is also entitled to its share of LPG and oil from Kupe. The oil is exported, while LPG is on-sold to its residential and commercial customers. Kupe introduces oil price risk, though hedging helps in the near term. The main concern is that Kupe earnings will end in 10-15 years, depending on the extent to which its life can be extended through new oil and gas discoveries. This is a risk to Genesis’ earnings, cash flow, and dividends over the long term. As transmission lines are upgraded and more renewable energy is developed, Genesis will likely close some of its aging thermal generation units in the medium term.

Financial Strengths

Genesis Energy’s financial leverage increased following recent acquisitions, however, one can be comfortable given expectations for solid earnings growth, long average debt maturity profile and the ongoing dividend reinvestment plan. As of June 2022, gearing (as measured by debt/capital) was 36%, down slightly on last year. Net debt/EBITDA (adjusted for equity credit on subordinated debt and excluding one-off costs) was 2.7 times in fiscal 2022, within management’s target of 2.4-3.0 times. There’s a forecasted unadjusted net debt/EBITDA, which is the better way to judge financial strength, of 2.5 times in the next few years, which is reasonable. Guidance is for capital expenditure of up to NZD 80 million in fiscal 2023. The elevated capital expenditure for a few years before falling back to typical levels of below NZD 70 million per year. Nonetheless, free cash flow should remain strong.

Bulls Say

• Persistently high wholesale electricity prices are flowing through to customer tariffs, supporting earnings growth.
• A mix of thermal and hydro generation assets allows Genesis Energy to take advantage of high electricity prices during periods of low rainfall and low hydro storage.
• The Pole 3 cable, linking the South Island to the North Island, reduces price disparity between the two islands and reduces location cost risk for all generators.

Company Description

Genesis Energy is one of New Zealand’s leading producers of electricity, accounting for more than 15% of the country’s total generation. The firm enjoys a strong retail presence, with the highest retail market share, at over 25%. The company has a mix of renewable and thermal assets, with the latter accounting for about 55%-60% of the firm’s overall production. The company has a 46% interest in the Kupe oil and gas field.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

FirstEnergy is moving past the scandal that linked the company with funds used in the former Ohio House speaker’s bribery scheme benefiting two nuclear plants FirstEnergy once owned as part of its former subsidiary, FirstEnergy Solutions. In 2021, FirstEnergy reached an agreement with the Department of Justice that required FirstEnergy to pay $230 million. The company recently entered into a RICO settlement for $37.5 million. An SEC investigation remains ongoing. Management has noted a loss is probable but can’t be reasonably estimated. One doesn’t expect the outcome to be material to the fair value estimate. The company also recently settled with intervening parties to resolve numerous open regulatory proceedings. Its three Ohio distribution utilities represent less than 20% of operating earnings. FirstEnergy’s underlying businesses are solid. The company’s regulated utilities are focused on accelerating investments that should result in solid earnings growth. The company’s $17 billion capital investment plan supports management’s 6% to 8% annual earnings growth target after incorporating moves to shore up the company’s balance sheet. 

The company raised $3.4 billion, including $2.4 billion from selling a minority stake in subsidiary FirstEnergy Transmission and $1 billion from new market equity issued last year. The company is looking to further monetize a minority interest in a transmission or distribution asset, with proceeds likely to be used to deleverage its balance sheet. The FirstEnergy’s transmission businesses have favorable federal regulatory frameworks providing consistent returns above the cost of capital. Due to accelerating investments in transmission, these businesses will compose nearly 40% of rate base by 2026. FirstEnergy is also accelerating its investment in states with constructive regulatory frameworks that are likely to produce consistent realized returns above their cost of capital. Given the recent bribery scandal, FirstEnergy didn’t increase its dividend in 2021, and one doesn’t expect an increase in 2022. As per forecast a dividend increase in 2023 and the company achieving the midpoint of its earnings guidance range.

Financial Strengths

Total debt/adjusted EBITDA was over 5 times in 2018 but should gradually fall. The total debt/capital to decline from 85% at 2017 year-end to about 65% by 2026, as management’s balance sheet initiatives slowly improve credit metrics. The company raised $3.4 billion of equity, including $2.4 billion from a minority sale in its FirstEnergy Transmission subsidiary and $1 billion from new market equity issued last year. This should meet near-term equity needs to support the company’s $17 billion capital investment plan. Management is looking to further monetize a minority interest in a transmission or distribution asset, with proceeds likely to be used to deleverage its balance sheet. FirstEnergy didn’t increase its dividend in 2021 and plans no increase in 2022. The dividend to increase in 2023, with annual dividend increases of 6% by 2026.

Bulls Say

• FirstEnergy’s narrow-moat businesses support operating earnings and roughly $17 billion of investment growth opportunities. 
• FirstEnergy is aggressively investing in electric transmission with most projects eligible to receive premium FERC-regulated returns. 
• Management is moving past missteps, allowing it to focus on investing and earning fair returns at its regulated utilities.

Company Description

FirstEnergy is one of the largest investor-owned utilities in the United States with 10 regulated distribution companies across six mid-Atlantic and Midwestern states. FirstEnergy also owns and operates one of the nation’s largest electric transmission systems with 24,000 miles of lines.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

The fair value estimate for OGE Energy is $37 after Oklahoma regulators recently approved a $30 million annualized rate increase, in line with a settlement reached in June. One can reaffirm no-moat and stable moat trend ratings. One had assumed Oklahoma regulators would approve a rate increase in line with the settlement, supporting 6% average annual earnings-growth rate during the next four years. This is in line with management’s 5%-7% long-term earnings growth target. The $30 million increase is below OGE’s $163.5 million request primarily because regulators approved OGE’s current 9.5% allowed return on equity instead of OGE’s 10.2% request. The 9.5% allowed ROE is slightly below other utilities’ allowed ROE, but one can think it’s a positive that regulators did not cut it. One has incorporated the first-half earnings boost that OGE received from warmer-than-normal weather. The warm weather to boost third-quarter earnings also, likely resulting in 2022 EPS at the high end of management’s $1.87-$1.97 guidance range.

 The large weather reversal after a cooler-than-normal 2021 summer could lead to a more than 10% jump in earnings this year. However, normal weather in 2023 could lead to mostly flat earnings year over year. On a weather-normalized basis, one can assume earnings growth will depend on OGE’s execution of its $3.8 billion capital investment plan for 2022-25 and continued electricity demand growth.  The OGE has benefited from the recent rally in Energy Transfer’s limited partner units from $10 per unit in early July to $12 now. The OGE sells by the end of the year all of the 22.1 million units it held in late July. OGE’s deal to swap its Enable ownership stake for Energy Transfer units is turning out to be a win for OGE shareholders. Energy Transfer units are up about 40% since OGE closed the transaction in December 2021, resulting in about $300 million of pre tax proceeds, or about $1 per share after tax, above the initial deal value. 

Financial Strengths

Between 2022 and 2025, as per forecast, OGE will invest nearly $4 billion at its utility. The company should be able to finance these investments with cash flow from utility operations, proceeds from the sale of its Energy Transfer units, and roughly $600 million of additional debt. One cannot foresee any material equity issuances in the next five years. The company has maintained a conservative capital structure, and one doesn’t expect a sizable shift in that strategy based on its quick exit from Energy Transfer units and ability to issue securitized debt to cover its excess fuel costs related to Winter Storm Uri in February 2021. The OGE’s dividend growth slowed after losing the earnings and cash distributions from Enable following the Energy Transfer transaction. Cash distributions from Enable helped OGE average 10% annual dividend growth since forming Enable in 2013. However, a large drop in energy prices and the economic impact of COVID-19 led Enable to cut its distribution by 50% in 2020. Less cash flow from Enable required OGE’s board to slow dividend increases to 6.2% in 2019, 3.9% in 2020, and 2% in 2021. Without the Enable earnings the expected OGE’s payout ratio will climb above 80% for several years. The dividend increases will average 2% annually for the next few years until the payout ratio falls to within management’s 65%-70% target.

Bulls Say

• OGE is making progress improving Oklahoma regulation so that it can execute its growth investment plan without creating a drag on its earned return on equity.
• Although the dividend increases too slow to about 2% annually, investors still should benefit from growing earnings and minimal equity needs. 
• The economy in OG&E’s service territory is healthy and annual customer growth exceeds 2%, higher than most electric utilities.

Company Description

OGE Energy is a holding company for Oklahoma Gas & Electric, a regulated utility offering electricity generation, transmission, and distribution to more than 800,000 customers in Oklahoma and western Arkansas. In December 2021, OGE closed a merger between Enable Midstream Partners and Energy Transfer. This resulted in OGE acquiring 95.4 million limited partner units of Energy Transfer in return for its 25.5% limited partner interest in Enable, a midstream services company it created in 2013.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook

Origin Energy offers exposure to relatively defensive Australian energy retailing and highly volatile liquefied natural gas exports. As a producer of commodities, Origin is a price-taker and has few competitive advantages. Capital and efficient scale are potential barriers to competition, but they’re not strong enough to justify an economic moat. Origin’s domestic energy retailing business grew quickly during the past decade, but strong acquisition-driven growth is unlikely to recur, with earnings growth largely dependent on Australia Pacific LNG. Acquisitions of government-owned energy assets were previously a key growth driver, but all state-owned retailers are now privatized. Origin, Energy Australia, and AGL Energy collectively control 80% of the market, and the Australian market regulator is unlikely to allow further consolidation among the majors. Future growth depends on energy demand growth, which is likely to remain modest. The price-based competition is to remain intense despite recent partial reregulation of electricity prices. A lack of competitive advantages means that a little more than tit-for-tat swapping of customers among the majors, which will allow them to largely maintain their market shares. The small new market entrants struggle to achieve scale.

In contrast to the retail market, the electricity generation market offers some growth opportunities. Substantial new renewable energy projects still need to be built to meet government targets and offset closing of aging thermal power stations, with Origin planning to significantly expand its installed renewable capacity. Domestic energy retailing is Origin’s core business and the cash cow that funds growth projects. Its relatively low-risk attributes are in stark contrast to APLNG. Concerns relate to exposure to volatile oil prices (given the link to LNG contract pricing) and high debt levels at Origin and APLNG. The long-term outlook assumes that significant Asian energy demand growth more than offsets increased supply and supports higher prices, though the global LNG market will remain oversupplied for a few more years after large recent supply additions.

Financial Strengths

Origin is in sound financial health following the APLNG sell-down, which netted AUD 2 billion in proceeds. Net debt/EBITDA (including cash distributions from APLNG) was 1.9 times in June 2022, at the bottom of management’s target range of 2.0-3.0 times. Earnings from the energy retailing business are falling because of weak wholesale electricity prices but should recover from fiscal 2023. The net debt/EBITDA stable at a little over 2 times for the medium term, supported by strong oil and LNG prices and a conservative dividend policy.

Bulls Say

• The Australia Pacific LNG project is the largest coal seam gas to LNG project in Australia and could significantly increase earnings if oil prices strengthen.
• Origin’s energy retail business is the market leader and should benefit from cost-saving initiatives.
• Origin’s cash flow base is diversified, and the company is less susceptible to the vagaries of the market than a non-integrated energy provider.

Company Description

Origin Energy is a major vertically integrated Australian energy utility. Its energy retailing business is the largest in Australia, with about 4 million customers and a 33% market share. Its portfolio of base-load, intermediate, and peaking electricity plants is one of the largest in the national electricity market, with a capacity of 6,000 megawatts. Origin also operates and owns 27.5% of Australia Pacific LNG, which owns large coal seam gas fields and LNG export facilities in Queensland.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Investment Thesis:

• BPT is making progress towards the production target of 28 MMboe in FY24.
• Despite the unknown with the Western Flank issue and the contribution to the group profile the production from this asset, management remain confident in achieving their 5-year target of 37 mmboe in FY25. 
• The acquisition of Lattice Energy provides a stable mix of producing assets. 
• The Company is currently on a 5-year capital expenditure program. The execution and delivery of this program could see upside risks to consensus estimates.  
• Favourable industry conditions on the east coast gas market over the long-term – i.e. tight supply could lead to higher gas prices.
• Strong balance sheet.
• Potential M&A activity. 

Key Risks:

• Execution risk – Drilling and exploration risk. Unable to resolve the issue at Western Flank, leading to long-term downgrades to key estimates for the project. 
• Commodity price risk – movement in oil & gas price will impact uncontracted / re-contracting 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. 
• Currency risk .

Key Highlights:

• Guidance + FY23 Guidance + Market Commentary.  Production. 20.0 – 22.5 MMboe (versus FY22: 21.8 MMboe). 
• Capex. $800 – 1,000m (versus FY22: $872m). 
• Unit field operating costs. $12 – 13 per boe (versus FY22: $11.74 per boe). 
• FY22 Results Highlights. Relative to the pcp:  Total revenue up +13% to $1.8bn; underlying EBITDA up +17% to $1.1bn; and underlying NPAT up +39% to $504m. The results were driven by higher demand and pricing for BPT products, offset by lower production. 
• Operating cash flow up +61% to $1.2bn with $752m free cash flow pre-growth expenditure. 
• BPT retains a solid balance sheet reflecting a net cash position and total liquidity of $765m at FY22-end.
• Reserves and Resources Update- As at 30 June 2022, an independent audit of Beach’s reserves was conducted by Netherland, Sewell & Associates Inc (encompassing 62% of 2P reserves, including 79% of developed reserves and 48% of undeveloped reserves). BPT ended FY22 with 283 MMboe of 2P oil and gas reserves (down -17% versus FY21: 339 MMboe), with the decline mainly attributable to production (-22 MMboe) and Bass Basin revisions (-25 MMboe). BPT recorded 2P CO2 storage capacity of 4.4 Mt and 2C contingent storage resources of 11.6 Mt after taking a Final Investment Decision for Moomba CCS. 

Company Description:

Beach Energy Ltd (BPT) is an oil & natural gas exploration and production company. BPT has both onshore and offshore operations in five basins (Perth, Cooper, Victoria, Tasmania & NZ) across Australia and New Zealand. The Company is a key supplier of gas into the Australian east coast gas market. The Company also owns strategic oil and gas infrastructure (Moomba processing facility & Otway Gas Plant). 

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.