Top 5 ASX Stocks To Buy In FY24

TEAM VEYE | 14 March 2023

1. BHP Group Limited (ASX: BHP)

BHP Group Limited (ASX: BHP), on 19 January 2023 announced its operational review for the half year ended 31 December 2022, which stated that the company had been continuously delivering reliable performance over the quarter and will have a dependable operating performance in the first half of the year 2023.

Western Australia Iron Ore (WAIO) has performed well while achieving 146Mt (100% basis) for the half year.

BHP entered into a Scheme Implementation Deed with (OZ) Minerals Ltd to acquire 100% of OZL for a cash price of $28.25 per OZL share. BHP shareholders are expected to benefit from this acquisition which includes increased exposure to future commodities, attractive synergies and growth options (which includes OZL bringing attractive brownfield copper expansion projects at Prominent Hill and Carrapateena in South Australia.

The unit cost guidance for Escondida and WAIO for the entire year remains unchanged. Unit cost guidance for BMA and New South Wales Energy Coal (NSWEC) has increased, which reflects production impacts from significant wet weather and inflationary pressure.

Outlook:

The acquiring of OZL is perceived to be beneficial to BHP because the creation of the South Australian copper basin could unlock potential operational synergies due to the proximity of the OZL’s Carrapateena and Prominent Hill operations with BHP’s existing Olympic Dam asset and Oak Dam development resource. BHP is primarily into iron ore but has exposure to commodities on and above this. One of the main growth strategies of BHP is adding Tier 1 Copper and Nickle interests through exploration activities and early-stage entry and acquisition options. The OZL acquisition will give an added advantage to BHP in its material handling systems.

Value Proposition:

The balance sheet of the BHP is very sound with a debt-to-equity of 33.6%. It has enough cash to capture any upcoming business growth opportunities. A 42% of ROE with a 21.9% of ROA demonstrates the efficient business operation of the company.

Technical Analysis:

(Chart source: TradingView) Weekly Candlestick Price Chart Pattern
The stock is in an uptrend moving above its EMAs (Exponential moving average) on daily, weekly and monthly t/fs. It is giving strong downside rejections on both weekly and monthly charts. Having given its highest close in recent months, with MACD (Moving average convergence and divergence) moving positively and RSI (Relative strength index) positioned well, it can have the potential of moving up higher. Although it may retrace a bit in the short term, sustaining above $51.40 can further accelerate the bullish momentum.

Veye’s Take

BHP has been able to deliver a fatality free production of iron ore with record sales volume at Western Australia Iron Ore and record material mined at Escondida. In FY 22 it merged the petroleum business with Woodside to create a top 10 energy provider resulting in exposure to oil and gas. BHP has also approved an investment of US$5.7 Billion in the Jansen Potash Project in Canada making BHP’s entry into the new commodity market. The company’s EPS growth is very strong. A price-to-equity multiple of 12.5 times along with a price-to-book value of 3.5x provides a good value proposition to the business. The company has reported a consistent increase in its EBIDTA margins which now stand at 61.5% showing that the company has been able to control costs and increase profits. The debt has reduced significantly over the past years and stands at 33% in FY22 compared to 37.7% in the previous year denoting that the company is focused on maintaining leverage on the lower side. The EV/EBIDTA stands at 3.6 x signalling the stock is potentially undervalued. Veye maintains “Buy” on “BHP Group Limited” at the closing price of $45.03 (As of 14 March 2023).

2. Webjet Limited (ASX: WEB)

On 17 November 2022, Webjet Limited (ASX: WEB) announced its financial results for the first half of FY23.

TTV of the group was reported at $2,143 million, up by 223% from 1H22. The company posted total bookings of $3.4 million, up by 137% from 1H22. Group revenue increased by 217% from 1H22 to $175.7 million and underlying EBITDA posted a spectacular turnaround of $88.4 million in underlying EBITDA from the 1H22 loss of $15.9 million, a growth of 557% on 1H22. The growth was mainly attributed to WebBeds. Diluted EPS for H1FY23 was 8.4 cents. As on 30 September 2022, Webjet had $504 million of cash, and the net operating cash during the period was $168 million.

Outlook:

Looking ahead, the company expects WebBeds to continue its growth trajectory and exceed pre-pandemic profitability levels in FY23, while the B2C businesses (Webjet OTA and GoSee) are projected to maintain consistent profitability levels in 2H23. WebBeds contributing more than 66% of the TTV anticipates 2H23 EBITDA to exceed pre-pandemic levels by at least $10 million. Search activity and conversions through the WebBeds platform are expected to increase, contributing significantly to the EBITDA margins. Overall, it appears that the company is well-positioned to capitalize on the rebound in the travel industry and deliver strong results going forward.

Cornerstone:

Effective cash management has enabled the company to maintain a strong balance sheet with a solid cash position and a debt-to-equity ratio of 29%. This financial strength puts the company in a good position to make acquisitions to further boost its value.

Technical Analysis:

(Chart source: TradingView) Technical Chart-Monthly Candlestick Price Chart Pattern

The upside move in the stock is expected to continue with “Higher Highs “formation and trading well above the 14/50-day EMA (Exponential Moving Average) crossover. The stock has breached all the previous highs since April 2020 and is expected to continue the upside momentum.

Veye’s Take

Webjet Limited has been able to recover strongly from the negative impact of the pandemic on the travel industry. The reopening of borders and lifting of travel restrictions has resulted in a significant increase in total bookings, group revenue, and underlying EBITDA, primarily driven by WebBeds. Webjet OTA recognized as one of the most profitable online travel agents in the world prior to the pandemic has gained back its momentum and has posted significant profitability during the period, with bookings at 79% of pre-pandemic levels and EBITDA margins above 41%. The company’s plan of rebranding GoSee in key markets and anticipated growth with the reopening of international borders to inbound tourism also suggests a strong future revenue and profitability growth trajectory. Web Beds bookings have exceeded what they were before the pandemic hit and profitability is getting close to pre-pandemic levels, laying a strong future revenue and profitability growth, scaling its share across all regions. The earnings in the next twelve months are projected to increase by 121.6% impacting positively on the PE multiples, and providing a good value proposition. Veye recommends a “Buy” on “Webjet Limited” at the closing price of $6.66 (As of 14 March 2023).
 

3. Flight Centre Travel Group Limited (ASX: FLT)

On February 1 2023 Flight Centre Travel Group Limited (ASX: FLT) announced having successfully completed $180 M placements. This placement was completed by the existing and institutional investors, with proceeds to be used for funding the acquisition of 100% interests in Luxury Travel Holdings Limited.

On 31 January 2023, it announced the acquisition of Scott Dunn, with the Enterprise Value of $211 M, which has been equivalent to ~ 9.6x EV/EBIDTA 12 months to 30 June 2023

On 14 November 2022, in its AGM, FLT reported that the corporate sales growth had been driven by higher airfares and it experienced a demand uplift when the government reopened the borders. The operating cash flow has been on the rise since March 2022. The accounts have been projected with an annual spend of $665m. The Q1 TTV contribution has been $2.6B and is expected to increase to $3.5B by the end of October.

Outlook:

Scott Dunn’s acquisition will provide Flight Centre Travel Group with an entry point into the UK and US luxury market segments as the acquisition will complement its offering in a segment currently underrepresented by FLT. Scott Dunn will provide high-margin markets with resilient characteristics. The segment is high value and with growing loyalty amongst the customers. The brand is scalable having the capabilities to accelerate growth using the Flight centre platform and infrastructure. The company is expected to deliver very attractive financial returns with the acquisition expected to be mid-teen percentages EPS accretive with a 12-month ending in June 2023 on a pro forma basis. Further, there is realization of synergies that impact the transaction costs. The corporate business of the company has consolidated its position as a market leader and has secured new accounts. The businesses that are built on FCM and Corporate Traveler brands have been achieving strategic growth. The demand has been increasing continuously, and the revenue margins have been steady year-on-year. Also, the cost margins have been improving significantly.

Cornerstone:

FLT is optimistic about its growth as the company is trading at a low value in comparison to the market. The company is expecting higher cash flows which seem to be quite positive for the company and has the potential to drive a higher share price.

Technical Analysis:

(Chart source: TradingView) Weekly Candlestick Price Chart Pattern

The stock, while trading above its EMAs (Exponential moving average) on the daily chart, is making higher highs on the weekly t/f. It is in consolidation mode as this time the up move was accompanied by strong volumes. It is now trading above its supports and above $19 can have the potential to move to an upper trajectory.

Veye’s Take

Flight Center Travel Group has a very healthy balance sheet which has helped it to sustain itself during the pandemic. The business has been fueled by organic growth and has been gaining market share globally. The company has been mainly focusing on an increased share of TTV with new and emerging channels which is one of the key strategic objectives. Productivity has been high resulting from the labor market. The leisure and corporate products are already there to enhance customer offerings across sectors, the capital expenditure has been predominantly directed towards investments in customer-facing and productivity-enhancing technologies. Veye maintains “Buy ” on “Flight Centre Travel Group Limited” at the closing price of $18.06 (As of 14 March, 2023).
 

4. Deterra Royalties Limited (ASX: DRR)

On 31 October 2022, Deterra Royalties Limited (ASX: DRR) provided an update on quarterly royalty revenue. For the September 2002 quarter, the group reported total royalty receipts of $50.9 million. The royalty revenue was contributed by three accounts:

Mining Area C (MAC), which generated iron ore revenue royalties of $50.7 million were down by 24.3% compared to the royalty revenue of $67 million in June 2022 quarter as a result of lower iron ore prices and lower sales volumes.

Mining Area C (MAC) production for the September 2022 quarter was 31.7 million wet metric tonnes (Mwmt) (100% basis), down by 2.6% compared to the prior quarter.

On 18 August 2022, DRR provided its full-year financial performance for the year ended on 30 June 2022.

Reported revenue growth of 83% on the prior year to $265.2 million. The revenue growth was attributable to increased production of 111Mwmt at Mining Area C (MAC), which was up by 80% in the same period due to the continued ramp-up of the South Flank expansion. Revenue royalties from MAC were up by 57% to $218.8 million and a capacity payment of $46 million was received for the period. EBITDA of $256.8 million, up by 90% on pcp at an EBITDA margin of 97%. NPAT of $178.5 million up by 89% on FY21 was recorded during the financial year FY22. Declared a fully franked final dividend of 22.08 cents per share and an interim dividend of 11.68 cps, taking full year FY22 dividend to 33.76 cents per share.

Outlook:

 
(Graphic Source: Company Reports)
The advanced operations at the South Flank will make Mining Area C as the world’s largest iron ore hub, producing some of the lowest cost and lowest carbon emitting iron ore in the world BHP’s newest and most technically advanced operation at South Flank has performed strongly with incremental production from South Flank reaching utilization rate of 84% in the June 2022 quarter. The project remains on track to ramp up to full production capacity of 145Mwmtpa by the end of FY24.The asset expansion and increased production activity will have a positive impact on the royalty revenue business of DRR.The ongoing operations at the Yalyalup and Wonnerup mineral sands assets are expected to further contribute to its future royalty revenue profile.

Technical Analysis:

 
(Chart source: TradingView) Technical Chart- Weekly Candlestick Price Chart Pattern

The overall bullish momentum is well intact with a support of $4.55, which in case if breaches will trigger stock to the level of $4.35. The price move at the current juncture is rejecting further downside. The indicators pointing up support the bullish view.

Veye’s Take:

DRR with a market cap of $2.53B as of 12 January 2023 with its simple business model of investment in mining assets with low capital and no direct exposure to the project operating cost but retaining exposure to the upside through expansions and extensions at no cost continues to deliver strong financial performance and delivering healthy returns to its investors. DRR underpinned by its high-quality MAC cash flows and disciplined capital management approach holds a strong capacity to fund growth and dividends. DRR at a price-to-earnings multiple of 14.05x and debt-to-equity of 0.21% offers a good investment proposition. Veye recommends a “Hold” on “Deterra Royalties Limited “at the closing price of $4.49 (As of 14 March 2023).

5. Lycopodium Limited (ASX: LYL)

On 22 February 2023, Lycopodium Limited (ASX: LYL) released its presentation for 1H23 stating that it had 1000+ staff globally, and the value of the capital projects currently in delivery was $3.9B. The company is undertaking investments in systems and platforms and in sector diversification.

The below table shows the half-yearly results for FY2023

(Graphic Source – Company Reports)
The company is well placed for a strong financial result for FY2023 with a full year guidance of approx. $320 M in revenue and an NPAT of $40M. On 31 December 2022, the company had a 49% interest in Kholo Marine & Minerals Pty Ltd. Apart from this Lycopodium has JV’s, including a 40% interest in Mondium Pty Ltd and a 50% interest in Orway IQ Pty Ltd. On 5 December 2022, Lycopodium received an EPCM service contract for the delivery of the Kiaka Gold Project in Burkina Faso for West African Resources.

Outlook:

The energy transition is driving the demand for base metals. The resource market for new and low-emission technologies continues to grow, which includes lithium, copper, nickel, cobalt graphite etc. Domestic manufacturing continues to present opportunities for the Industrial Process Sector. The future strategy of the company is a continuous focus on achieving a broader geographical reach, a balanced project delivery portfolio, and a mix of EPCM and EPC. Also diversifying the sectoral exposure to the green markets via a continued focus on downstream minerals processing of battery minerals. The company is also focusing on investments in systems to drive efficiency and facilitate work sharing across the division and subsidiaries globally.

Value Proposition:

The company has a robust portfolio. It reported a Net Income After Tax of $26.85M which shows a growth of 90.8% in FY22. The balance sheet is healthy. There was an increase in the cash flow from operating activities of $41.68M which demonstrates that the business is performing very well. The D/E ratio at 15.70% shows that the company has a low debt capital structure compared to its peers. The TTM Dividend yield is 7.58% and the TTM PB is 3.02 which can create a significant value for its shareholders.

Technical Analysis:

(Chart source: TradingView) Monthly Candlestick Price Chart Pattern

The bullish momentum in the long-term chart remains well intact. The formation of solid bull candle trading at all-time high and indicators, in a positive territory together supports the bullish momentum.

Veye’s Take:

The company has been delivering significant projects across the globe which include the Bomboré Gold Project that achieved its first gold pour in September 2022, the Navachab Plant Expansion in Namibia, Motheo Copper Project in Botswana and the Cobre Ball Mill 6 Project in Panama which is due for completion in Q1 2023. The company’s infrastructure business is continuing to provide design, engineering and technical advisory services. LYL, with a strong diversified pipeline can have the potential of continuing growth in the short term. Veye maintains “Hold” on “Lycopodium Limited” at the closing price of $8.33 (As of 14 March 2023).

 Disclaimer

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