Investment Matters

Company specific focus

Generally speaking, the Christmas break is a quiet time for news.  As mentioned above, reporting season ramps up in two weeks, which is when the next major news' flow occurs.  If a company has released news during the Christmas break, we have included it in the tables below.  We have also included a brief synopsis of each company, as in the current environment we believe it is worthwhile to reflect that you are a part-owner of actual businesses.

ALS (market cap: $1.9b)


ALS is a global diversified testing services provider.  It has operations in more than 350 locations, in 55 countries, with operations in sectors including food services; environmental; pharmaceutical; minerals; energy and industrial.

New addition

As disclosed in your Dec-15 quarterly report, ALS was added to your portfolio late last year (subsequent to the last edition of W&D for CY-15).  The company conducted a capital raising to reduce debt (as it had debt denominated in foreign currency which wasn’t fully hedged), as well as to fund expansion in the growing food services area.

Your investment team has followed this company for a number of years, and we are pleased to have obtained a starting position at what we consider to be an attractive price.


Ausenco (market cap: $41m)


Ausenco is a global engineering, construction and project management company servicing the resources, infrastructure and energy sectors. The company provides innovative full project lifecycle solutions to clients.

Company news

Ausenco won $45m of new work, including a $17m EPC coal project in NSW, a $15m optimise project for a coal mine in Queensland, and a contract extension for an optimise project for Vale in Mozambique.


Cardno (market cap: $287m)


Cardno is a professional infrastructure and environmental services company, with expertise in the development and improvement of physical and social infrastructure. Cardno conducts its businesses globally, with key geographical areas including Australia, New Zealand and the USA.

Company news 

Cardno appointed a new CFO, to start on 1-Mar-16. Peter Barker has a strong track record and experience, and has worked in senior roles with companies including BHP Billiton, Computershare and Cisco Systems.


BHP Billiton (market cap: $57b)


BHP Billiton is a large natural resources company. BHP is among the world's largest mineral exploration and production companies (commodities include iron ore; copper; coal and potash). The company also undertakes exploration, production and refining of oil and gas.

Company news

BHP released its operational review for the half ending 31-Dec-15. Production volumes fell slightly vs pcp for petroleum, copper and coal, with a slight increase in iron ore production (but a larger increase was expected). Average realised prices for each commodity were provided, with marked decreases vs pcp (as expected). The company retained full year production guidance for petroleum, copper and coal. Iron ore production will be impacted by the Brazilian Samarco tailings failure.

Not unexpectedly given the current oil price, a writedown of the US onshore petroleum assets will be taken. One-off charges related to redundancies, inventory writedowns and undisclosed taxation matters have also been flagged for the December half year financial results.

The company emphasised the importance of balance sheet strength, perhaps confirming the widely held expectation that the dividend will be cut (as it needs to be – the current progressive dividend policy is not sustainable in the current environment).


Emeco (market cap: $25m)


Emeco provides equipment solutions to the global mining industry. Specifically, it rents fully maintained large mining equipment to miners and mine operators. The company has operations in Australia, Canada and Chile.

Company news

Emeco provided FY-16 operating EBITDA guidance between $53m and $57m. This was a little below expectations (because of reduced activity / demand in the Canadian winter), but still represents ~22% to 30% growth on the prior year.

Emeco also released its second quarter trading update. Group utilisation averaged 75% in Q2 FY-16, up from 69% in Q2 FY-15, while operating utilisation averaged 42%, which was slightly below the prior corresponding period. $8.7m operating cash flow generated in Q2 FY-16.


Southern Cross Media (market cap: $876m)


Southern Cross Media broadcasts free to air commercial radio (FM and digital) and regional TV, and it has online media platforms across Australia.

Company news

Media reports indicate progress is being made towards media ownership regulatory change. Such change would likely see a shake-up of ownership of media players, especially the regional ones such as Southern Cross.


South32 (market cap: $5.7b)


South32 is a diversified metals and mining company producing alumina, aluminium, coal, manganese nickel, silver, lead and zinc.

Company news

South32 released its December quarterly report. Production volumes were varied (as they can do), for instance zinc and manganese alloy volumes increased by 13% and 2% respectively QoQ. Metallurgical coal and manganese ore declined considerably, impacted by difficult geological conditions and a shutdown respectively. FY-16 production guidance was maintained, except for metallurgical coal. Overall, the company’s strong cash generation ability continued to be displayed, with net debt reduced to US$115m at 31-Dec-15 (unaudited). It was US$402m at 30-Jun-15.


Origin Energy (market cap: $8.2b)


Origin Energy is one of Australia’s largest producers (and sellers) of energy. It has 4.3m electricity, gas and LPG customers, which represents 29% of the National Electricity Market (NEM). It produces 6,000 MW of electricity, and it produces and transports 147 petajoules of gas to customers around Australia.  Origin Energy also has an interest in an LNG export project (APLNG) located in Queensland.

Company news

Origin made a significant announcement on 22-Dec-15 that it has hedged its oil price exposure. It purchased put options for FY-17 over 15m barrels at a strike price of A$55/bbl (75% of the volume) and US$40/bbl (25% of the volume). Note: the LNG price is usually set as a percentage of the oil price. This move proved fortuitous given the subsequent oil price decline. Also, the first shipment of LNG from the APLNG facility departed Curtis Island (near Gladstone) on 9-Jan-16.

This week Origin confirmed it has in excess of $6.5b of committed undrawn debt facilities and cash, which is more than sufficient to support its remaining contributions to Australia Pacific LNG. It has no material refinancing requirements until FY19. Cash flow from the existing businesses, without any distributions from APLNG, is expected to be sufficient to service all interest and dividend payments and all committed capital expenditure associated with the company’s businesses (retailing, generation etc). In effect, any market concerns about the company’s debt position are unfounded.


 NB: Market caps as at 31-Dec-15.