MIDWEEK STOCK TIPS
AUSTRALIAN POTASH BUY
Hartleys sees Australian Potash as undervalued on a comparison of its peers in the small but ultra-competitive sulphate of potash developer sector.
The broker said the company was funded to the completion of its definitive feasibility study on its Lake Wells project, which could be released as soon as next quarter.
“Australian Potash has an envious position of having a deep palaeochannel (three to four times deeper than its peers) which is expected to make the estimation of reserves, and the extraction of the brine easier,” Hartleys said in a note to clients.
It sees project funding as the key risk for Australian Potash, assuming a favourable study outcome is delivered.
The broker maintained its speculative buy rating on Australian Potash, with a price target of 25¢ compared with yesterday’s close of 7.5¢.
The imposition of anti-dumping duties on ammonium nitrate imports from Sweden, Thailand and China is good news for Orica, which makes the fertiliser and explosives ingredient, according to Deutsche Bank.
It estimated the reduced threat of cheap imports could cause prices on the east coast to increase by about $50 a tonne in the longer term.
Incitec Pivot is another winner from the decision but both companies will have to wait a few years for a significant cash boost. Orica has only 5 per cent of its volumes out of contract this financial year and 15 per cent the year after. However about 80 per cent of its volumes will feel the benefits less dumping the year after.
Little impact is expected on the west coast, as Deutsche expects the market to be oversupplied for at least the next three years. Orica owns 45 per cent of the Pilbara plant operated by Norway’s Yara that has been plagued by technical problems and is expected to restart production next year.
The bank has retained a hold rating on Orica, which closed yesterday at $20.98, a 16.5 per cent premium to its target of $18 a share.
Credit Suisse said results for the Dorado field which Santos operates off the Pilbara had provided more confidence in the commercial viability of an oil development, and indicated potential upside.
It discounted Dorado as a gas play because of the lack of a market access route in the near term but said it looked increasingly viable as an oil project.
“We also note Wood Mackenzie value Dorado at $US1.26 billion so there is plenty upside potential beyond our more conservative estimate,” Credit Suisse said. “We see upcoming catalysts from Dorado, Barossa, onshore production increases and Papua New Guinea expansion progress.” That was balanced by downside risks from LNG contract price reviews and potential delay in PNG, and longterm risk in sustainability of production costs at the GLNG and Cooper Basin projects.
Credit Suisse increased its target price for Santos by 5¢ a share to $6.40. The stock closed yesterday at $6.87.