Strong energy players will be left standing

AUSTRALIAN coal mining and energy companies, particularly the large ones with economic moats, are positioned to continue to extract cost savings from contractors, suppliers, and labour, according to a research report by Morningstar.
Strong energy players will be left standing Strong energy players will be left standing Strong energy players will be left standing Strong energy players will be left standing Strong energy players will be left standing

Image courtesy of BHP.

Lou Caruana

This would partially offset the pain from lower prices, Morningstar said.

Reduced capital expenditure is likely for the foreseeable future.

The reduction in expansionary capital expenditure is a significant headwind for resources services, according to Morningstar.

The resources sector is overall slightly undervalued, trading at a 4% discount to fair value.

The main pockets of value were in the large mining stocks, such as BHP Billiton, Morningstar said.

“BHP Billiton and Rio Tinto are strong enough to ride out the storm, but we prefer BHP Billiton's superior diversification,” the Morningstar research said.

“Billiton is a best idea with appeal from the strong balance sheet, diversified earnings base, and the relatively attractive yield.”

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