Cooper Energy (ASX: COE)
Sector: Oil & gas
Market cap: $456.7m
Share price: $0.28
Dividend yield: 0%
This renewable energy company to buy now is in the box seat to be a key supplier to South East Australia where it believes the market opportunity is 70 petajoules (PJ)/year by 2023 and over 100PJ/year by 2024. 1 petajoule is the equivalent of powering about 19,000 homes for a year. Utility customers include AGL Energy, Energy Australia and Alinta Energy.
This energy stock to buy is now at the beginning of contracted gas sales, which is no mean feat considering the major problems management has had to deal with. These centre around the APA owned and operated Orbost Processing plant for Cooper’s flagship offshore Sole gas field in the Gippsland Basin, Victoria.
What's happened to this Small Cap stock to buy?
As indicated, this ASX energy stocks progress has not been linear. Most recently, gas production was temporarily lower in the December quarter due to down time associated with reconfiguration of the plant. This contributed to a weaker share price. However, following the changes, production is expected to increase to a sustainable 45 TJ/day and achieve 68 TJ/day over time. Annual contracted gas volumes of 19.75PJ in 2021 are expected to lead to a step change in revenue and cash flow.
Operational problems aside, when it gets it right, the problem will be where to put all the money! This is an Australian company in the energy sector with a market cap of just over $600m, which is on track to ramp up revenues from under $80m in FY20 to over $300m in FY22. Moreover, costs are sunk and much of this drops to the bottom line.
Origin Energy (ASX: ORG)
Sector: Power provider
Market cap: $70bn
Share price: $4.02
Dividend yield: 5.4%
At the big end of town an ASX energy stock to buy now is Origin Energy, which has the ability to ramp up LNG production to take advantage of higher prices with gas production techniques supported by artificial intelligence.
This is through its 37.5 per cent interest in Asia Pacific LNG, held within its Integrated Gas division. In November 2020 this ASX listed energy stock achieved record operated asset production of 1,614 terajoules/day. With strong demand translating into long-term contracts, Origin has increased FY21 production guidance from 650-680 petajoules to 675-705PJ.
The company in the energy sector to buy with a share price of $4.02 is experiencing pressure on earnings, an announcement this week highlighting that its retail business is generating lower profits, driving a 13 per cent downgrade in FY21 earnings (EBITDA) guidance. This comes on top of Origin’s underwhelming profit for the December quarter.
What will happen overtime to this company in the energy sector?
Over time we believe that higher LNG prices boost its bottom line, as will continuing production increases. On the retail side, Origin is on track to deliver cost reductions, some of which through its disruptive distribution platform Kraken, owned by Octopus Energy (Origin has a 20 per cent stake in this company).
The time to buy is not when everything is going hunky dory, but when current difficulties obscure future profit growth.
Worley (ASX: WOR)
Sector: Engineer contracting
Market cap: $5.4bn
Share price: $10.38
Dividend yield: 4.4%
Worley’s share price has been hit hard in the wake of a profit downgrade due to ongoing Covid related project deferrals. The renewable energy company expects these projects to return as global economic conditions improve, which is what makes this company a great stock to buy noe. There have been negligible project cancellations. This underlines how volatile the contractors earnings are, but also how there are opportunities for investors who appreciate value.
Moreover, Worley has broadened out its offering to beyond oil and gas says it is seeing profit potential accelerate across all its sectors. We believe current share price weakness provides a buying opportunity.
Why do we think you should buy this company in the energy sector now?
We like the exposure to energy (both oil & gas as well as renewable) the engineering contractor introduces to our portfolio because our model rates it as good value based on our high price target, which reflects its strong growth profile. Moreover, there is much less risk than pure energy plays because of its diversified income streams and technical expertise.
Worley also has a strong position in green energy as the world’s most influential economies have moved to explicit targets to achieve net-zero carbon emissions. The International Energy Agency estimates investment of almost US$3tn per year to 2030 in sustainable development.
Worley’s core competencies now include offshore wind, where international oil companies, utilities, and investors are looking to expand. Worley currently has 25% of the UK market and 15% of the European market in this sector.
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