What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
Aurizon Holdings Limited (ASX: AZJ)
FY13 result in line–with dividend surprise.
On Monday 19 August 2013 Aurizon management announced FY13 underlying EBIT of $754 million, up 29 per cent on the pcp, and largely in line with our expectations of $756 million.
The FY13 underlying NPAT was $487 million against our forecast of $485.2 million.
A final dividend of 8.2 cents per share was declared (pcp 4.6cps, forecast 7.0cps).
Investment case
While the result was largely in line with expectations, the higher dividend and commitment to a higher payout ratio were key positives. With increasing confidence in the transformation of the business, we see the next key catalysts for the stock as being the delivery of further growth initiatives, coupled with the potential partial sell down of the CQCN.
Outlook
Management has provided coal haulage guidance of 200 million tonnes to 205 million tonnes, or an increase of 3.2 per cent to 5.8 per cent on FY13. While modest, this growth is despite the loss of some Rio Tinto contracted tonnes to Asciano in November 2013. Consequently, we consider this a solid volume growth. Management also confirmed they have seen coal volumes continue to improve in August, following strong growth in July.
Commitment to timing of cost saving delivery
Management have given guidance of $90 million of cost savings of the $230 million total will be delivered in FY14, with the remaining $140 million-plus to be achieved in FY15. We see the market as increasingly confident in the delivery of the 75 per cent operating ratio, particularly with the scope to materially reduce labour costs, which is the largest contributor to the $230 million cost savings.
In our view, the announced timings are positive as they give further confidence in the delivery by management.
Earnings changes and valuation
We have made minor composition changes to forecasts in the forecast period. Consequently, our valuation and 12 month target price remain unchanged at $5.00 per share, giving a Neutral rating.
Citation Resources Ltd (ASX: CTR)
Citation Resources has an approx. 60 per cent working interest in block 1-2005, located onshore Guatemala in the prolific South Peten Basin.
The company recently flowed 37 degree API oil from its Atzam #4 well at an equivalent rate of greater than 1,000 barrels of oil per day.
Current production is restricted to 140 barrels per day due to storage constraints.
Several prospective zones remain untested.
Resource potential for Atzam is estimated at 20 million barrels (gross).
Fiscal terms in Guatemala are favourable, with operating netbacks of approx. 50 per cent of WTI.
The company is scheduled to spud a follow-up well, Atzam #5, in September 2013 and may also work-over two wells at the Tortugas Salt Dome, which flowed at historic rates of greater than 1,500 barrels of oil per day and proven 2P reserves of 0.6mmbbl have been certified.
Atzam – 20mmbbl Potential:
The 600bopd achieved on test at Atzam #4 was from a secondary target, with several other (potentially more) prospective zones remaining to be tested or behind pipe.
The implication is that the excellent result to date is just the tip of the iceberg.
An historic Independent Reserve and Resource Assessment has indicated 2.3mmbbl based on one well alone, with greater than 20mmbbl potential for the entire field.
Net to CTR’s working interest this represents value of up to $220m or $0.17.
Guatemala – Great Place to Find Oil:
The South Peten Basin, in Guatemala, is an extension of the prolific basins found in neighbouring Mexico; however, the region remains relatively underexplored despite a high success rate (58 of 153 wells drilled have produced oil).
Attractive fiscal terms mean that the 20mmbbl potential at Atzam alone could be worth approx. $370 million (gross NPV10 unrisked).
Tortugas – Proven Reserves:
The company has development potential at the nearby Tortugas Salt Dome where proven 1P and 2P reserves are estimated at 0.3mmbbl and 0.6mmbbl, respectively.
Two historic wells flowed at greater than 1,500 barrels per day on the field.
We estimate upside potential of approx. 4mmbbl at Tortugas.
Forward Work Program:
CTR has a busy 6 months ahead with upgrade of surface facilities and offtake likely to be completed within weeks.
Follow-up drilling at Atzam #5 is scheduled for September and two workovers are also possible by the end of the year at Tortugas.
The forward work program is now fully funded via a recent $6 million raise.
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.