Collected Wisdom

This week we look at WorleyParsons, Perpetual, Beach Energy and AGL Energy.

Summary: The newsletters believe WorleyParsons is a buy, based on its winning of major new contracts, while Perpetual, Beach Energy and AGL Energy are considered holds.
Key take-out: The investment press note that as mining companies continue to look for overseas opportunities, globally diversified WorleyParsons is likely to see further upside.
Key beneficiaries: General investors. Category: Shares.

This is an edited summary of the Australian investment press: It includes investment newsletters, major daily newspapers and broker reports. The recommendations offered represent the views published in the other publications and may not represent those of Eureka Report. This article is general advice only which has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.

WorleyParsons (WOR)

WorleyParsons has just won two material contracts; an extension of improvement projects in Canada and a rail project for Vale in Africa. The newsletters are becoming more confident about value and growth opportunities for the mining services company and rate it a buy. Moreover, indications that M&A activity could soon pick up have some looking at WorleyParsons in a new light.

The most recent contract win was announced late last week: WorleyParsons will project manage the Nacala Rail Corridor Project, as contracted by Vale subsidiary Corredor Do Desenvolvimento Do Norte S.A. (CDN). The rail corridor spans 584 km and will link Vale’s Moatize coal mine with the export Port of Nacala, located in the north-east of Mozambique.

The latest win follows a previous announcement regarding the renewal of a contract with Imperial Oil for a further five years. All in all, things are looking up for WorleyParsons, the newsletters say. As mining companies continue to look for overseas opportunities, globally diversified WorleyParsons is likely to see further upside.

On another note, following the news of the $1 billion-plus merger between Sinclair Knight Merz and US-based Jacobs Engineering, expectations are rising that other deals in the mining services and engineering sector will follow. WorleyParsons could well be among the next in the sector to consolidate in a bid to better compete with the bigger players, one source says.

  • Investors are generally advised to buy WorleyParsons at current levels.

Perpetual (PPT)

In the seemingly never-ending tug of war for The Trust Company, Perpetual has lifted its bid by 20%, putting the ball firmly in rival IOOF’s court. After assessing the revised offer, the investment press rates Perpetual a hold.

The new bid, recommended by the Trust board, is for 0.182 Perpetual shares per Trust share. Trust shareholders will also be entitled to a special dividend of 22 cent if the Perpetual offer is accepted. Shareholders will also have the option of taking cash or a combination of cash and scrip, offering a degree of flexibility that was absent in the IOOF offer, the newsletters say.

Perpetual’s bid is at a premium to IOOF’s, but is subject to ACCC approval. The newsletters say the review by the ACCC is expected to be completed later this month. The investment press expects IOOF to launch a counter bid before too long.

The likelihood of bids moving higher means the potential earnings increase from the acquisition will be diluted, which is one reason the newsletters are rating Perpetual a hold.

The new offer comes as Perpetual told investors this week that its Transformation 2015 program has delivered strong returns for shareholders, with the stock outperforming the market since the program was announced in June 2012. One source says that the strategy has largely depended on cost cutting rather than growth so far and that growth needs to become a more central focus.

  • Investors are generally advised to hold Perpetual at current levels.

Beach Energy (BPT)

Ranked as Australia’s sixth biggest oil producer, Beach recently announced record revenues of $700 million for the full year, a 13% rise on the previous corresponding period. Net profit after tax (NPAT) fell 6% to $153.7 million in the year, while underlying profit in rose 15% to a record $141 million.

As Eureka Report’s Ian Verrender pointed out in a recent article, in the resources sector the investment pendulum has undoubtedly swung from minerals to energy (Beach Energy’s transformation). The investment press is seemingly of a similar view, rating this one a hold for now.

The better-than-expected result was paired nicely with a better-than-expected dividend. Beach announced a final dividend of two cents per share, up from 1.5 cents last year. The investment press is hoping to see a similar trend on the dividend front going forward. Meanwhile, on the production side, Beach is forecasting a lift in oil and gas production in the coming financial year of up to 16%, driven by its Western Flank oil portfolio in the Cooper Basin.

The decline in the Australian dollar is another factor that the investment press is focused on and should deliver an additional tailwind for Beach Energy.

The newsletters are also mindful that fears of an escalation in the Syrian conflict could drive the oil price higher, although such fears seem to be dissipating given the ongoing efforts to pursue a diplomatic solution.

  • Investors are generally advised to hold Beach Energy at current levels.

AGL Energy (AGK)

AGL Energy posted impressive results for FY13, reporting a 238.3% increase in statutory profit, to $388.7 million. The main driver of the result was the purchase of the Loy Yang power station during the year. When we last reported on AGL in July the newsletters were rating the company a buy. But In recent days, the focus for the newsletters has been the change in government and what it means for AGL. The NSW Government is another concern. With a forward PE ratio of 13 times and a dividend yield of over 4%, some have AGL as a buy, but continued policy uncertainty means a majority rate it a hold for now.

The Coalition winning the election means a change in carbon policy and a review of the renewable energy target scheme, the investment press says, which will have a direct impact on energy producers and retailers, including AGL. If carbon pricing is repealed, annual cash payments made to AGL will be stopped, putting a dampener on next year’s profits.

But it’s not all bad news: The newsletters also point out that without a carbon price, the Loy Yang A generator will have increased value. The investment press is convinced that Loy Yang could well be a long-term winner, given the expected lift in its net present value above the acquisition price once the carbon price is gone.

A further headache for AGL is the NSW Government, which has foreshadowed changes to the regulations regarding the exploration and development of coal seam gas, leading AGL to incur a $343.7 million pre-tax impairment charge for FY13.

The energy retailer provided no outlook when unveiling the full-year results, opting instead to wait until the annual general meeting in October to give an update on earnings guidance.

  • Investors are generally advised to hold AGL Energy at current levels.

Watching the Directors

  • Navitas co-founder Peter Larsen topped the sellers list last week, bagging himself $32,343,365 from the sale of 5,293,747 of the company’s shares in on-market trades.
  • Sonic Healthcare directors were also in a selling mood last week. Chief executive Colin Goldschmidt offloaded 712,250 shares for $15.25 apiece in on-market trades, while finance director Chris Wilks sold 350,000 shares for the same price, also on-market. The shares were sold “to fund the exercise price and associated tax liability arising from the recent exercise of options”.
  • On the buying side, Treasury Wine director Peter Hearl forked out $143,979 for 30,000 of the company’s shares on market.

Takeover Action September 5-11, 2013

DateTargetASXBidder(%)Notes
06/09/2013Argosy MineralsAGYBaru Resources0.00Closing Oct 3
30/08/2013Australian Power & Gas CompanyAPKAGL Energy43.50
10/09/2013Breakaway ResourcesBRWMinotaur Exploration68.03
03/09/2013Central Australian PhosphateCENRum Jungle Resources79.72
07/06/2013CIC AustraliaCNBPeet85.40Ext to Jun 21
30/08/2013Elemental MineralsELMDingyi Group Investment17.86
26/07/2013Energia MineralsEMXCauldron Energy0.00Closing Nov 16
28/08/2013EnvestraENVAPA Group33.00
06/09/2013Firestone EnergyFSEWaterberg Coal Co45.07Ext to Sep 18
30/08/2013GraincorpGNCArcher Daniels Midland27.98
03/09/2013Lemur ResourcesLMRBushveld Minerals48.27
14/08/2013Trust CompanyTRUEquity Trustees2.54Mutual due diligence
11/06/2013World Oil ResourcesWLRHoldrey15.10
Schemes of Arrangement
21/08/2013Bravura SolutionsBVAIronbridge Capital0.00Vote Sep 23
29/08/2013CloughCLOMurray & Roberts Holdings61.60Vote mid-Nov
02/08/2013Emerald Oil & GasEMROchre Group Holdings16.00Vote Nov 1
30/07/2013Platinum AustraliaPLAJubilee Platinum0.00Vote adjourned for amendments
11/09/2013RHGRHGResimac-Australian Mortgage Acquisition C0.00Superior to Pepper's
03/09/2013Trust CompanyTRUIOOF Holdings0.00Vote Nov
09/09/2013Trust CompanyTRUPerpetual0.00Board supports proposal
Foreshadowed Offers
28/08/2013Continuation InvestmentsCOTDMX Corporation2.91Bid for two thirds of shares delayed
10/07/2013RHGRHGPepper Australia0.00Competing proposal
Source: NewsBites