Five ASX energy companies are reporting full-year and interim results this week, with Oil Search Limited (OSH) being the largest and perhaps the most highly anticipated. Investors are keen to see some good figures come out to help propel the sector higher; the ASX XMJ Materials Index is down 7% year over year and the ASX XEJ Energy Index is down 10%.
Last week Woodside posted a record underlying profit of $2.06B, an increase of 24.5% for the full year 2012. Revenues rose 32%. The once much maligned Pluto LNG project is paying off – contributing $1.4B to Woodside’s total sales of $6.3B. Analysts were hoping for specific news on the future of its costly Browse LNG project, but no hard details were forthcoming.
BHP was expected to show a loss, but a 58% drop was a bit more than most anticipated. Revenue also fell by 12% but the big surprise was the announcement that BHP’s CEO was retiring. This news was more disturbing than the numbers.
The following one-month chart for BHP and WPL shows market sentiment going into earnings and immediately after:
The share price drop coincided with the biggest fall in 3 months registered by US share markets. As of the close of trading in the US on 21 February markets declined further.
All this serves to remind us that earnings releases are only a moment in time and no matter how positive the numbers, global jitters can easily wipe out prior gains.
Here are the five companies worth watching this week:
Yr over Yr
Oil Search Ltd
AGL Energy Ltd
Shares of Oil Search Limited (OSH) may be positive right now but the year has been volatile. Here is a one year chart for the company:
Oil Search has operated in Papua New Guinea since 1929 and is currently its largest oil and gas producer. The company currently operates all the producing assets in PNG.
A major attraction for investors is the company’s 29% stake in the PNG LNG project, a joint venture with Exxon Mobil, Santos Ltd, and others. Like other major LNG projects, this one is running 21% over budget. Nevertheless, Exxon claims costs are now under control and – with much of the needed infrastructure already in place and the rest proceeding according to plan – shipments are expected to begin in 2014.
Most analysts are positive on the stock. Citi recently upgraded the company to BUY, merited by Oilsearch’s most recent positive production and drilling reports.
Deutsche Bank, BA-Merrill Lynch, UBS, and CIMB Securities also have BUY ratings on the stock.
CIMB recommends that investors ditch Woodside and Santos and grab shares in Oilsearch instead, based on its growth prospects. On the whole, analysts seem comfortable with cost controls and infrastructure development at PNG LNG. Additionally, the positive results Woodside has demonstrated from its successful Pluto LNG facility may be helping OSH.
However, given the positive production reports and the glowing opinions from analysts, negative surprises in the upcoming earnings release could mean trouble for the share price.
AGL Energy (AGK) is an integrated energy company that can make the proud claim of being the oldest stock on the ASX. The company provides electricity and gas to retail and commercial customers. It is involved in both upstream and downstream activities with pipelines, generating and power plant facilities, and gas exploration. Although it is subject to regulatory pressures, the upside is a secure revenue stream. Note the outstanding 5 year total shareholder return (dividends plus share price appreciation) of 11.2%. The share price has outperformed the overall energy index by a wide margin. Here is the chart:
Despite operating in a regulatory environment, AGL has impressive growth prospects. Note the P/EG of 0.35 which is reflected in the company’s 2 year growth forecast of 45.7%. Anticipated deregulation and privatisation of retail energy markets open up new possibilities for AGL. The company may acquire government owned energy generation facilities in New South Wales (watch out for any news in the earnings release).
The company is involved in coal seam gas exploration but company drilling in NSW is under review and a negative ruling on the future of coal seam gas would not be good for the company. However, AGL also owns strong assets in renewable energy sources, including hydro, wind, solar, and geothermal. The 4.1% dividend yield is solid as the company has increased dividends per share every year since 2007.
Shareholders of Whitehaven Coal (WHC) were crushed in 2012 and the downward slide continues in 2013. Here is its one-year chart:
Whitehaven Coal is a pure play coal producer heavily dependent on commodity pricing and Asian demand, notably Chinese demand.
China is still growing, but so is its air pollution. Coal will remain in the energy mix for some time but China is looking for cleaner alternatives, especially natural gas.
Despite this, in early February UBS, Macquarie, Citi, CIMB Securities, Credit Suisse, Cit, and BA-Merrill Lynch weighed in with BUY, OUTPERFORM, and OVERWEIGHT recommendations on Whitehaven. These opinions reflect the recent announcement that the company expects to complete approvals for its new mine at Maules Creek in New South Wales. Whitehaven claims the mine will be producing in the first half of 2014. The mine has been opposed by locals since the approval process began in 2010. Since this announcement so closely precedes the earnings release, negative news is not likely. The news of the anticipated approval was not enough to stop the share price from sliding 6%.
Long term shareholders of Aurora Oil and Gas (AUT) have seen an astounding 65.2% total return averaged over five years. The company is Australia based and listed on both the ASX and the TSX (Toronto Stock Exchange) but its assets are in North America, in the lucrative shale gas fields. It began drilling in 2005 and has only recently started trading on the ASX in 2010 and on the TSX in 2011. US based Marathon Oil is now operating some of the acreage in the US Eagle Ford Shale in Texas owned by Aurora. This stock is highly volatile as its one-year chart shows:
Aurora went from a $5.8 million dollar loss in FY 2010 to a net profit after tax of $30.1 million in 2011. Credit Suisse, Deutsche Bank, and UBS have BUY ratings on the stock. Citi, JP Morgan, and BA-Merrill Lynch have SELL, UNDERWEIGHT, and UNDERFORM ratings on Aurora. Q4 production and revenue reports showed some declines and the bearish brokers question the valuation with a P/E of 26. However, note the P/EG of 0.24. The 2 year growth forecast for Aurora is 108.6%. The company funded its exploration through capital raisings before adding long term debt of $29.5 million in FY 2011 for a gearing level of 10.9%. This is one to watch as another blockbuster profit report could propel the share price upward.
Beach Energy (BPT) was the darling of the ASX a few years back when it became one of the first Australian oil and gas explorer to start shale gas exploration. The company is a 20% joint venture partner with Santos in the country’s first operating shale gas facility, with commercial sales beginning in October 2012. The shale gas boom in the US spurred speculation Australia could have similar success but that dream is still a dream. Beach has conventional oil and gas assets globally, with operations in New Zealand, Tanzania, Egypt, Romania, the US, and Papua New Guinea. While that sounds impressive, its future is shale gas. BA Merrill Lynch said it best in a 14 February downgrade to UNDERPERFORM from NEUTRAL when the analyst noted “Beach Energy’s investment case is too reliant on nascent Australian shale assets.” If you are willing to invest some time in following developments in shale gas exploration and production, Beach Energy may be worth a risk. If not, there are better opportunities elsewhere. Here is a one year price chart for Beach:
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