Recent Updates From 4 Low P/E Stocks - STO, ORG, RHC, IFN

  • Jun 09, 2020 AEST
  • Team Kalkine
Recent Updates From 4 Low P/E Stocks - STO, ORG, RHC, IFN

Summary

  • P/E ratio is a widely used tool to assess a stock’s attractiveness. As a common practice, investors are advised to compare P/E ratios of companies operating in the same industry.
  • While a high P/E ratio might be the focus area of growth investors, stocks with low P/E ratio indicate that they might be undervalued and thus find value investors tracking them.
  • Santos and Origin announced the environment approval from the Queensland government for their joint project Mahalo, which now has all the clearance to proceed further.
  • Ramsay Healthcare signed multiple contracts in May 2020 and recently completed its SPP.

Among the various matrices to evaluate whether a stock is investment-grade or not, P/E ratio is one that is widely used by market participants. The ratio helps assess whether a stock is overvalued or undervalued and thus finds different suitors for stocks with high P/E ratio and with a low P/E ratio.

While for growth investors, stocks with a higher P/E ratio might be more attractive as they have substantially higher growth potential, value investors prefer value buying and thus find low P/E stocks more appealing.

A good practice is to compare P/E ratios of stocks that operate in the same industry. This is because these stocks work under the same environment and face similar headwinds and tailwinds, thus offering a reasonable comparison.

In this article, we would be looking at four ASX-listed companies across three different sectors with a low P/E ratio (compared to their respective industry average) and cover their recent update.

Santos Limited (ASX:STO)

Santos Limited is one of the top independent producers of oil & gas in the APAC region. The Company supplies energy requirements of households, businesses as well as key industries throughout Australia & Asia.

State Environmental Approval for Mahalo Gas Project

On 9 June 2020, The Queensland government granted environmental approval to Maholo Gas Project jointly managed by Comet Ridge Limited (ASX:COI) (40%), Santos (30%) and Australia Pacific LNG (30%) [Development operator is Origin Energy]. The project has met all the regulatory requirements to proceed further.

Santos finalised the acquisition of ConocoPhillips’ northern Australia & Timor-Leste assets:

On 28 May 2020, Santos completed the acquisition of ConocoPhillips’ northern Australia and Timor-Leste assets for a slashed rate of US$1.265 billion along with an upgraded contingent sum of US$200 million depending on a final investment decision (FID) on Barossa.

Because of the current volatility in the market and the postponement of Barossa FID, both STO and ConocoPhillips decided to lower the earlier declared US$1.39 billion upfront payment while concluding to US$1.265 billion and also raise the contingent payment on Barossa FID to US$200 million from US$75 million.

At acquisition completion, the net settlement amount was US$655 million, lesser than the earlier prediction of US$800 million, which comprise of the amended firm purchase price of US$1.265 billion minus the cash in the acquired business from the effective date of 1 Jan. 2019 to close with usual alterations.

The procurement will provide STO with operatorship as well as the power of a first-class portfolio of low-priced, long-life natural gas assets as well as strategic LNG structure. With the completion of the acquisition, Santos’ interest in Bayu-Undan and Darwin LNG improved to 68.4%. This would support the Company to boost its 2020 production and cash flows. STO’s interest in the Barossa project to backfill Darwin LNG rises to 62.5%.

The purchase price was funded through the existing cash along with US$750 million of new two years acquisition debt.

Stock Information:

On 9 June 2020, STO shares were trading at A$6.265 (at 3:02 PM AEST), up 8.957% from the previous close. STO has a market cap of A$11.98 billion, and a P/E ratio of 12.430x, compared to the energy industry average of 16.79x.

Origin Energy Limited (ASX:ORG)

Origin Energy Limited is amongst the top energy companies in Australia. The Company is engaged in exploring, generating & delivering energy here and abroad.

State Environmental Approval for Mahalo Gas Project

The Queensland government, on 9 June 2020, granted environmental approval to Maholo Gas Project jointly managed by Comet Ridge (40%), Santos (30%) and Australia Pacific LNG (30%) [Development operator is Origin Energy]. The project has met all the regulatory requirements to proceed further.

Strategic Partnership with Octopus:

On 1 May 2020, Origin Energy Limited entered into a strategic alliance with the UK retailer & developing technology player, Octopus Energy (Octopus). Under the alliance, ORG would change its retail operations providing a significant enhancement in client satisfaction, a substantial decrease in expenses, & upcoming growth prospects.

The Company would be adopting Octopus’s operational style & customer platform, Kraken to bring improvements in consumer experience & expenses. Origin would be securing a 20% interest in Octopus along with a permit in Australia to Octopus’s platform Kraken.

In the upcoming 24 months to 30 months, the Company would move its 3.8 million gas as well as retail electricity client accounts to this platform. With this, the Company would reduce it’s operating and capital cost.

The transaction would be financed A$134 million paid up front. The remaining A$373 million would be distributed over four financial years.

Stock Information:

On 9 June 2020, ORG shares were trading at A$6.470 (at 3:02 PM AEST), up 3.852% from the previous close. ORG has a market cap of A$10.97 billion, and a P/E ratio of 10.830x, compared to the energy industry average of 16.79x.

Ramsay Health Care Limited (ASX:RHC)

Global healthcare player Ramsay Health Care Limited is engaged in offering superior services & providing outstanding patient care.

Completion of A$300 million SPP

On 29 May 2020, the Company completed its share purchase plan and raised A$300 million. Share Purchase Plan (SPP) was open to 80,273 qualified shareholders, and legitimate applications add up to A$695 million were obtained from 41,877 shareholders. Each share was issued at A$56.00 every share.

In total, the Company raised A$1,500 million which comprise of A$1,200 million via placement and remaining A$300 through SPP. The proceeds would be used for partly repaying certain rotating debt facilities which will stay open for redraw.

Recent Agreements Signed by RHC to Make its Facilities & Services Operational During COVID-19 Pandemic:

  • Finalised Agreement with NHS England.
  • Finalised Agreement with State of Western Australia.
  • Binding heads of agreement with the NSW Ministry of Health
  • Comprehensive deal with the State of Queensland

 

Stock Information:

On 9 June 2020, RHC shares were trading at A$66.170 (at 3:02 PM AEST), down 1.401% from the previous close. RHC has a market cap of A$15.36 billion, and a P/E ratio of 25.870x, compared to the healthcare industry average of 44.41x.

Infigen Energy Limited (ASX:IFN)

Infigen Energy Limited provide Australian companies with firm supplies of reliable & competitively priced clean energy. It produces renewable energy from its fleet of owned wind farms as well as from its portfolio of contracted assets.

Off-Market Takeover Offer to Acquire All of The Infigen Stapled Securities:

On 3 June 2020, Infigen Energy Limited and Infigen Energy Trust together acknowledged the announcement made by UAC Energy Holdings Pty Ltd related to its intention to make an off-market takeover offer to acquire all of the Infigen stapled securities it does not already own for A$0.80 per stapled share.

Infigen’s Board notes the Proposal is based on specific condition. The Board of Infigen is considering its response to the Proposal, and the shareholders are advised not to take any action related to any document obtained from UAC.

Also Read: Takeover Play for Infigen by UAC, Share Price Skyrocketed 33.051%

Stock Information:

On 9 June 2020, IFN shares were trading at A$0.810 (at 3:02 PM AEST), down 0.368% from the previous close. IFN has a market cap of A$791.12 billion, and a P/E ratio of 16.980x, compared to the utilities industry average of 21.29x.

 


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