Aurora Oil & Gas (AUT) is an oil and gas exploration, development and production company operating in North America since early 2005.  With a market capitalization of almost $300 million, it is a small cap hot stock, outside of the ASX 200.

The plan for the development of the company’s oil and gas interests is focused on the US, where large markets and existing infrastructure provides the opportunity for attractive economic returns.

Maiden revenue is expected in the 4Q10. AUT boasts a sound balance sheet with no debt and US$40 million in cash on hand.

The company has the potential to deliver production and profit growth for many years from its existing assets, which are already benefitting from a strengthening commodity market.

2010 is expected to represent a significant year of value creation for AUT from activities that will include drilling, testing, production and land acquisition across the portfolio.

The company is well funded for its existing activities and is well positioned to pursue new oil and gas opportunities.

More about the Business

AUT is focused on onshore US in the south east Texas Eagle Ford shale / Austin Chalk, known as the Sugarkane Gas & Condensate Field.

The company has embraced low-risk development assets, with a drilling inventory in excess of 500 well locations and a very significant production growth profile.

The Sugarkane Field involved an initial acreage acquisition in 2006. Farmin is nearing completion, giving excellent results, with drilling times and costs being reduced dramatically.

Sugarkane consists of a high quality Austin Chalk reservoir, directly overlaying an organic, rich and calcareous regional Eagle Ford shale.

The field has been delineated by more than 25 wells, with consistent reservoir and hydrocarbons from all penetrations.

A Liquids Story

AUT calls itself a “liquids story”, being invested heavily in oil as liquids are more valuable than gas.

AUT is highly leveraged to oil prices. High condensate yields and rich gas significantly increase gross revenue for each mscf produced.

The Eagle Ford is a liquids rich trend. The relative energy differential (BTU) for oil/gas is approximately 6:1. The value ratio of oil/gas has been trending up in recent years.

The Eagle Ford is a premium US shale play, with large US and multinational companies having invested significantly to enter.

These companies include BP, Shell, ConocoPhillips, Exxon/Mobil and Anadarko, amongst others.

An active drilling program is delivering best in trend results. Eagle Ford drilling activity continues to grow rapidly, with some 50 new wells drilled and completed along the trend to the end of 2009, with a dramatic ramp up in 2010.

AUT currently estimates there are 80 rigs operating in the trend.

Eagle Ford drilling has demonstrated improved initial production rates, a decrease in early decline rates and a substantial reduction in costs.

Activity Forecast

AUT’s acreage boasts more than 500 drilling locations. Under current field rules, each gas well holds around 1,320 acres and oil wells of 320 acres.

The group’s drilling plan through 2011 is focused on securing land by production.  Revenues from carry wells are expected in the 4Q10.

AUT’s maiden independent reserves report was released in mid-August. The following reserve allocations were made, with an effective date of 1 July 2010:

1P (Proved) – 1,523,000 bbls, 8.3 Bcf and NPV(10) US$70.2 million;

2P (Proved plus Probable) – 4,317,000 bbls, 24.9 Bcf and NPV(10) US$190.1 million;

3P (Proved plus Probable plus Possible) – 33,207,000 bbls, 138.0 Bcf and NPV(10) US$986.2 million.

Company chairman Jon Stewart noted that the maiden reserve statement provides independent verification of the value proposition for AUT and the rapid de-risking that has resulted from the drilling program to date.

Looking Ahead

AUT have a clear and agreed drilling plan going forward, for which the group is already funded, which will see the majority of the possible reserves moved into the proved and probable categories through the next 12 – 18 months.

Significant increases in production and cash flow to AUT from the development of this world class on-shore asset will continue to grow shareholder value for some time.

Preliminary results indicate robust economics, with Eagle Ford looking to be one of the best shale plays in the US.

AUT’s initial well results are excellent, the group boasts a high liquids ratio, good flow rates and a low reliance on gas prices.

AUT is the largest Sugarkane participator of listed juniors, has no debt and US$40 million in cash.

The company boasts huge growth potential, with project maturity through continuous drilling to deliver production and profit growth for years to come and is one of the stocks to watch.

Australian share price for AUT last closed up 2.3% to 67 cents.

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Nufarm (NUF) produces agricultural fertilisers and chemicals used for crop protection internationally, with less than half its sales coming from Australia.

The company is also actively involved in the marketing and sale of branded, off-patent crop protection and seeds treatment products.

Recently, NUF announced that FY10 net profit is expected to come within its previous guidance of $55 million – $65 million.

Worryingly, however, net debt of $620 million was much higher than previous estimates of $450 million, due to increased working capital levels.

The higher debt levels means NUF is now in a minor breach of one of its loan covenants, however the breach will be covered by the waivers currently being put in place.

Nevertheless, NUF was one of the shares to sell following the profit announcement, plunging 6.8% in a day when the stock market jumped over 2%.

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Centro Retail Group (CER) is a diversified property trust with domestic and international assets by shopping centre format. It currently has a market capitalisation of over $360 million.

CER has recorded a $113.3 million net profit in FY10, compared to a $2.7 billion loss a year earlier, which makes it one of the shares to watch.

The result was driven mainly by the huge asset write-downs in FY09, as property income actually fell 22% due to adverse foreign exchange movements.

CER is struggling to contain its mountainous debt, with the group advising that its planned restructure and recapitalisation are now expected to be completed by the end of 2011.

CER was also cautious about the outlook, stating that the US market conditions were difficult, and that it was contending with a constrained capital environment in both Australia and the US.

CER failed to declare a final distribution, yet still managed to fly 6.5% yesterday.

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Kingsgate Consolidated (KCN) is a gold miner, operating in South East Asia, South America and Australia.

The company’s trump card is its Chatree Mine in Thailand, which is currently undergoing yet another expansion review.

Like many other Aussie gold miners, KCN has been one of the stocks to watch in recent months given its leverage to record gold prices.

KCN recently reported its full year results, which showed a more than doubling of FY10 net profit to $73.1 million thanks to a 54% jump in revenue.

The huge growth in revenue was driven by higher spot gold prices in addition to increased production.

KCN’s Chatree gold mine produced 132,628 ounces of gold for the year, which was also the first time the mine operated for the full year.

KCN forecast FY11 gold production of 120,000 – 130,000 ounces, however this was subject to the timing of accessing the remainder of its Chatree North mineralisation.

KCN declared a final dividend of 20 cents per share, up from last year’s 15 cents.

KCN was among the stock market gainers on the day of its results announcement, rising 2.8%.

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Fairfax Media (FXJ) is a blue chip diversified media company with a market capitalization of over $3.4 billion.

FXJ has posted a FY10 net profit of $282.1 million, swinging from a $380.1 million loss a year earlier.

On an underlying basis, net profit rose 23% to $278.7 million, beating market forecasts, with core earnings at most of FXJ’s divisions recording growth from a year ago, making it one of the ASX stock picks.

Earnings at the Australian Regional Media business fell 2% amid lower advertising revenue, however this was offset by strong growth at FXJ’s online division.

The first seven trading weeks of FY11 have been positive for FXJ, with revenues up 5% on-year, and if current trends continue, first-half earnings are expected to grow by the high single digits.

FXJ declared a final dividend of 1.4 cents per share, and its share price soared 4.4% on Friday.

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Australia and New Zealand Banking Group (ANZ) is the nation’s third-largest bank by market capitalisation, and is among the top 50 banks in the world and is one of the shares to buy in a bull market.

ANZ operates retail and business banking in Australia, New Zealand and throughout the South Pacific.

Australia’s banks held up relatively well during the global economic downturn, with provisions for problem loans being the primary issue. However, our major banks believe that provisions have passed their peak and recent results are evidence of this.

ANZ’s 3Q10 results, released today, are a sign of recovery for our major banks. Troublesome bad debt charges decreased whilst underlying profit surged (up 37% for the quarter).

Also in the news is ANZ’s latest foray into Asia. ANZ is eyeing off a 57.27% stake in Korea Exchange Bank, worth $3.8 billion and giving ANZ the opportunity for a solid platform in South Korea.

Tentative Recovery Mode

Like all of our banks, financial institutions, and companies in general, ANZ was hit hard by the global credit crunch, with most of our banks reporting large writedowns and bad debts.

ANZ addressed the global economic downturn in its 1H10 results release, noting that the scale and depth of the crisis in the US and Europe meant that recovery will not happen smoothly.

The US economy is starting to show signs of a sustainable recovery, whilst Europe is still suffering at the hands of the Greek debt crisis, which will impact on credit spreads globally.

Still, ANZ believes the problems in Greece are unlikely to affect underlying economic growth globally and are not going to be very significant for Australia.

The bank has forecast the Australian economy will grow by 3% in 2010, with Asia, excluding Japan, forecast to grow by 8%.

Fitch Recognises Asian Strength

Earlier this week, market chat surrounding ANZ focused on the group’s proposed majority stake ownership in Korea Exchange Bank.

ANZ is participating in a due diligence process for a 57.27% stake in the South Korean bank, worth $3.8 billion on current market values.

Allegedly, private equity fund MBK Partners is still trying to put together a bid for the 51% stake in KEB that Lone Star Funds is trying to offload. MBK is also apparently in discussions with other investors to form a consortium.

A majority stake in KEB would give ANZ a solid platform in South Korea, Asia’s fourth-largest economy and an increasingly important trade partner for Australia.

ANZ will only go ahead with a deal if it satisfies its strict criteria, including that the deal is accretive to shareholder value within the short to medium term.

The latest deal is part of ANZ’s strategy of becoming a super regional lender.

Fitch Ratings agency has recently revised up ANZ’s long-term Issuer Default Rating (IDR) to AA- Outlook Positive from AA- Outlook Stable,  noting ANZ’s Asian expansion strategy and generally improved financial profile.

Fitch said the change takes into account ANZ’s improved earnings diversity following the full acquisition of its wealth management operations.

Quarterly Analysis

ANZ today confirmed that its 3Q10 underlying profit surged 37% to $1.3 billion on year, taking underlying profit for the nine months to 30 June to $3.6 billion, up 26% on year.

Impressively, bad debt charges for the period were at $1.44 billion, a 34% decrease.

The quarterly figures impressed the market today, even offsetting somewhat gloomy outlook guidance.

ANZ said that a global economic recovery was in swing, with the improving economic cycle continuing to see ANZ’s provisions trend lower.

However ANZ cautioned that the global outlook is unusually uncertain on a combination of consumer, business and public sector de-leveraging, domestic and international reregulation, and the implications of high unemployment and other protracted structural challenges in the US and in Europe.

ANZ warned that banks around the world are facing permanently higher costs, with continuing pressures on wholesale funding and deposit rates.

The bank hasn’t yet determined its 2011 funding task but this is expected to come in at around $20-$25 billion.

At the end of June, ANZ had a Tier 1 capital ratio of 10.3%.

Outlook

Australia’s banks held up relatively well during the global economic downturn, with provisions for problem loans being the primary issue. However, our major banks believe that provisions have passed their peak and we agree.

ANZ’s 3Q10 results, released today, are a sign of recovery for our major banks. Troublesome bad debt charges decreased whilst underlying profit surged (up 37% for the quarter).

Also of interest is ANZ’s latest foray into Asia. ANZ is eyeing off a 57.27% stake in Korea Exchange Bank, worth $3.8 billion and giving ANZ the opportunity for a solid platform in South Korea.

Though the market was initially concerned about ANZ’s aggressive Asian growth strategy, ANZ is continuing to benefit from strong growth in Asia as the bank battles softened domestic credit growth.

And while global market volatility continues to mar the future, the improving economic cycle is helping ANZ’s provisions trend lower.

ANZ closed up 1.3% to $22.47 yesterday.

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ASX stock Sonic Healthcare (SHL) is an international medical diagnostics company, providing laboratory, medicine/pathology and radiology services.

Sonic Healthcare (SHL) today reported its FY10 results, keeping the market happy.

SHL recorded a 71% rise in net profit on the prior year to $293.2 million. The prior-year net profit result was impacted by writedowns.

Revenue of $2.99 billion compared with $3.01 billion previously, while underlying earnings rose 28% on year to $544 million on a constant currency basis.

SHL said it was a strong result, despite 2H10 difficulties due to regulatory changes affecting the Australian pathology industry.

These impacts were mitigated by SHL’s increasingly diversified operations, with over 60% of revenue sourced from outside Australia.

SHL declared a final dividend of 35 cents per shares, steady on year.

On a constant currency basis, SHL expects net profit for FY11 to climb by 5%-15%.

Australian stock price for SHL finished the yesterday’s session up 3.6% to $10.80.

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Challenger FSG (CGF) is a diversified financial services organisation, focused on providing solutions to financial intermediaries and their clients.

CGF also happens to be one of the larger wealth management companies in the stock market.

Recently CGF reported a FY10 net profit of $282.5 million, swinging from a $90.7 million loss a year earlier.

The profit result was driven by strong retail sales growth and improved returns on its invested funds.

Sales of guaranteed investment products surged 82% following a successful marketing and distribution campaign.

CGF sounded a positive outlook, unlike its major rivals, saying that it expects cash earnings at its Life business to grow 11% to $375 million.

Given CGF specialises in annuities, it is better placed to leverage off continuing market volatility as retirees will become more attracted to its low risk, fixed rate, products.

CGF also declared a final dividend of 8.5 cents per share, and it was one of the hot stocks on the day of the announcement, with its share price rocketing 8.2%.

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Shares to Sell – Billabong (BBG)

Billabong International Limited (BBG) is a producer of surf wear and sports apparel, with a presence in over 60 countries. With a market capitalisation of almost $2 billion, it is listed in the top ASX 200.

BBG has posted a 4.5% drop in FY10 net profit to $146 million, with the result just ahead of analyst estimates of $146 million.

Revenue was flat, in constant currency terms, at $1.5 billion, as BBG saw a decline in sales at America and Australasia.

Sales were impacted by the lingering effects of the global financial crisis and a sharp deterioration in trading conditions in Australia during the final quarter.

BBG sounded a very cautious outlook, stating that it expects a tough Australian market to translate to a flat EBIT result in FY11.

BBG declared a final dividend of 18 cents, whilst its poor outlook saw its share price sink almost 10% today.

Based on this, BBG may be one of the shares to sell. To find out how to sell shares on the ASX, sign up for a free trial at Australian Stock Report.

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Aussie Stocks – AMP Limited  (AMP)

AMP Limited (AMP) is a leading wealth management company with more than 3.4 million customers across Australia and New Zealand. Aussie stock AMP is a popular blue chip stock and is one of the major movers on the ASX.

It is Australia’s largest retail and corporate superannuation provider, and one of the region’s most significant investment managers.

AMP offers a wide range of financial products and services, including: retirement savings and income; investments; superannuation; financial planning; insurance; and banking.

After bouncing back in 2009 after a disastrous 2008, AMP has encountered further challenges in 2010 on fears of a global economic slowdown.

The group released its 2009 results earlier this year, which failed to move market sentiment.

Today, AMP released its 1H10 results. The group’s closely-watched underlying earnings result was below market expectations, being impacted by higher insurance claims and a decline in profit from AMP’s mature business.

All of AMP’s divisions showed weakness in 1H10, except for its New Zealand division, and the group is forecasting continued investment market difficulty in 2H10.

Credit Crunch Cloud

Towards the end of 2007, AMP encountered problems, care of the high volatility flooding the Australian equity market.

AMP went into damage control in late 2007 and 2008 as its stock slumped, taking careful steps to maintain its “A”-range credit rating.

The company soldiered through the credit crunch by bypassing acquisitions in order to reduce debt and pay out capital returns to shareholders.

AMP looked ready to turn it all around last year, in line with the growth displayed by most companies (including finance companies) on hopes of a global economic rebound.

Renewed Investment Jitters

Coming into 2010, AMP’s stock became sluggish on renewed fears of a global economic downturn.

In February, AMP released its results for 2009, failing to move market sentiment much either way.

Net profit rose to $739 million from $580 million in the prior year, whilst underlying profit was down 5% at $772 million.

Revenue from ordinary activities came in at $10.92 billion, swinging from a loss of $10.97 billion the prior year on the back of net investment losses.

AMP kept its dividend steady at 16 cents per share, contributing to a result that both AMP and a major broker noted was roughly in-line with forecasts.

AXA Deal Dragging

Market focus on AMP has for a long time revolved around its bid for AXA Asia Pacific Holdings, which has also been a takeover target for other suitors.

In May, AMP said there is a long way to go in its proposed purchase of AXA. The company admitted to still needing final approval from Treasurer Wayne Swan, though the ACCC has not blocked AMP’s bid.

AMP is looking to AXA APH’s independent directors and minority shareholders for proposal support after the ACCC blocked National Australia Bank’s (NAB) counter-bid for AXA.

With today’s 1H10 results release, AMP failed to release any encouraging news on the proposed takeover.

The group noted that AXA still remains strategically attractive, though the market is of the opinion that NAB will eventually win AXA.

Underlying Earnings Aches

AMP today disappointed the market by reporting 1H10 results which fell short of expectations.

Net profit for the half rose 17.4% to $425 million on growth initiatives, and ahead of analysts’ forecasts for around $383.4 million.

Of more concern was AMP’s underlying profit result of $383 million. Though this was up from $367 million in the same half a year ago, it was below market expectations for around $420 million.

AMP declared a half dividend of 15 cents per share, compared to a dividend of 14 cents a year ago.

A deeper look into AMP’s results highlighted several challenges. All of AMP’s divisions showed weakness for 1H10, except for its New Zealand business.

Also evident was the impact of a government crackdown on fees in the domestic pension fund industry. As one of Australia’s largest pension fund managers, AMP has had to respond to the crackdown by rolling out new products.

However, the potential benefits of these new products will not likely be seen in the near-term.

AMP said that investment markets are likely to remain challenging in 2H10 and added it was too soon to give guidance for the full year.

The one upside was cost guidance. AMP expects costs in the Australian Financial Services division to rise just 3% in 2010, down from a prior forecast for 4%-5% higher costs.

Outlook

Like many global equities – and not just those pertaining to the finance sector – AMP has seen its fair share of trials coming into 2010.

Renewed fears of a global economic slowdown has dragged on AMP, which is also battling a government crackdown on fees in the domestic pension fund industry.

AMP’s 1H10 results failed to impress investors today. The underlying earnings result was below analysts’ expectations. It is evident that AMP has suffered a difficult half on higher insurance claims and a decline in profit from its mature business.

All of AMP’s divisions showed weakness in 1H10, except for its New Zealand division.

Unfortunately, going ahead AMP expects to see further challenges. The company anticipates investment markets to remain troubling in 2H10, and for this reason AMP has declined to give specific full year outlook guidance.

AMP share price has suffered over the course of one year falling from as high as $6.97 to as low as $5.09 in yesterday’s session. However, if a break through below $5.00 key support is confirmed then further weakness may result.

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