ONGC – Target 211, 234, 246, 272 (Upside 7.5% to 37%)
Stock is progressing well on intermediate wave three of first primary of third cycle. Currently it is in minute wave (iii) of minor 5, which is targeted at 211 with confluence of targets of both. Target for intermediate wave 3 is 245 (towards first target of cycle wave at 270).
It has also successfully broken out of larger TF supply zone with 4 daily TF candles closing above the zone. MACD slightly higher than its tops during minor movement, RSI mid and MFI not in overbought zone. ATR is on rising trend @4.6 bouncing from support level of 2.6. Weekly R2 was rejected and found support at Pivot. Quarterly and monthly R1 was broken and reverted, crucial to see it closing above 196 and 201 respectively. Camarilla R4 was broken with good momentum and volume and has reverted probably to confirm the breakout, good indicator of a rally ahead.
It has also broken the upper boundary of minor and minute channels and holding above it. Positive confluence of bullishness.
There seems to be reasonably decent accumulation at all levels, though volumes were heavy during first minor, fairly balanced during third and lower but steady during minor fifth in progress.
Currently trading at a P/E of 5.7 & EV/EBITDA of less than 4x. With a dividend yield of > 7%, the valuations are still on the lower side of fair value gap. Analysts have given target of 215+. I did some quick maths myself to convince me on a valuation of 234-272for the reasons mentioned as follows:
1) Long term beta of stock is sub 0.7x, doing a valuation along the efficient frontier (CAPM), I get Ke at 13% (Rf 7.25% ~ 10Y yield) - P/E of 7.7x, this gives me valuation of 235 for standalone, and incorporating subsidiaries / JV / holdings at CMP with 50% discount, I get 272 as fair Price including subs.
2) Even if we take Beta as 1, the resultant Ke is 15.5% implied P/E of 6.45, standalone value is 198 and with subs its 234.
3) Above numbers of valuation are based annualized EPS, with Q324 EPS estimated by me at INR 6.9 (substantially lower than analysts estimates around 9, QoQ at -17.5%). Reason, analysts have assumed sale of Gas during the Q324 @ $6.5 / MMBTU while I have assumed $3.3 per MMBTU, oil price realisation should be marginally better QoQ in running quarter. All these gives me annualized EPS of 30.62 which is the basis for valuation above. While subs stake value is taken @ 50% discount, the latent value remains, even though stocks like HPCL, OICL & GAIL have rallied substantially, a 50% discount is more than safe.
4) High Dividend yield of ~7%, RoE 17.8%, RoI 9.5%, high grade credit ratings, size of the firm etc. remain a plus.
Even though I am late in the party, I am long with target of 234-272 (234 trading target, 272 investing target in about a year) even though it’s a riskier trading setup from short term trading perspective. Stop loss would be 166 to negate ensuing movement as impulse. Stop loss will be deep in case of wave theory as against usual 2xATR. RRR is low as am late in the party.
I would be glad to hear feedback from traders / investors tracking the stock. Feedbacks keep me motivated to share my trading thesis.
Disclaimer : The contents herein are my personal views, for me to make an investment decision, shared here with an objective of seeking views and comments from traders community at trading view platform. Nothing contained herein should be construed as an advice, offer, inducement or encouragement to buy or sell any shares, security, derivatives linked to the security, debt security or any other security of the company mentioned herein. The readers must make their own independent assessment, evaluation and valuation of the company and/or any of the securities issued by it or referenced to it. The reader is advised to take advice from their professional financial advisors before entering into any transaction or making a financial decision, without relying on anything contained hereinabove, or views given as addendum or comments hereafter. The author shall not be responsible or liable, directly or indirectly, for any loss or damage, including loss of profits, caused to the reader, or any other person or third party, whether pecuniary or otherwise, whether in present or in future, whether incurred or probable. Any replication of the contents herein is strictly prohibited except with the prior written consent of the author.
It has also successfully broken out of larger TF supply zone with 4 daily TF candles closing above the zone. MACD slightly higher than its tops during minor movement, RSI mid and MFI not in overbought zone. ATR is on rising trend @4.6 bouncing from support level of 2.6. Weekly R2 was rejected and found support at Pivot. Quarterly and monthly R1 was broken and reverted, crucial to see it closing above 196 and 201 respectively. Camarilla R4 was broken with good momentum and volume and has reverted probably to confirm the breakout, good indicator of a rally ahead.
It has also broken the upper boundary of minor and minute channels and holding above it. Positive confluence of bullishness.
There seems to be reasonably decent accumulation at all levels, though volumes were heavy during first minor, fairly balanced during third and lower but steady during minor fifth in progress.
Currently trading at a P/E of 5.7 & EV/EBITDA of less than 4x. With a dividend yield of > 7%, the valuations are still on the lower side of fair value gap. Analysts have given target of 215+. I did some quick maths myself to convince me on a valuation of 234-272for the reasons mentioned as follows:
1) Long term beta of stock is sub 0.7x, doing a valuation along the efficient frontier (CAPM), I get Ke at 13% (Rf 7.25% ~ 10Y yield) - P/E of 7.7x, this gives me valuation of 235 for standalone, and incorporating subsidiaries / JV / holdings at CMP with 50% discount, I get 272 as fair Price including subs.
2) Even if we take Beta as 1, the resultant Ke is 15.5% implied P/E of 6.45, standalone value is 198 and with subs its 234.
3) Above numbers of valuation are based annualized EPS, with Q324 EPS estimated by me at INR 6.9 (substantially lower than analysts estimates around 9, QoQ at -17.5%). Reason, analysts have assumed sale of Gas during the Q324 @ $6.5 / MMBTU while I have assumed $3.3 per MMBTU, oil price realisation should be marginally better QoQ in running quarter. All these gives me annualized EPS of 30.62 which is the basis for valuation above. While subs stake value is taken @ 50% discount, the latent value remains, even though stocks like HPCL, OICL & GAIL have rallied substantially, a 50% discount is more than safe.
4) High Dividend yield of ~7%, RoE 17.8%, RoI 9.5%, high grade credit ratings, size of the firm etc. remain a plus.
Even though I am late in the party, I am long with target of 234-272 (234 trading target, 272 investing target in about a year) even though it’s a riskier trading setup from short term trading perspective. Stop loss would be 166 to negate ensuing movement as impulse. Stop loss will be deep in case of wave theory as against usual 2xATR. RRR is low as am late in the party.
I would be glad to hear feedback from traders / investors tracking the stock. Feedbacks keep me motivated to share my trading thesis.
Disclaimer : The contents herein are my personal views, for me to make an investment decision, shared here with an objective of seeking views and comments from traders community at trading view platform. Nothing contained herein should be construed as an advice, offer, inducement or encouragement to buy or sell any shares, security, derivatives linked to the security, debt security or any other security of the company mentioned herein. The readers must make their own independent assessment, evaluation and valuation of the company and/or any of the securities issued by it or referenced to it. The reader is advised to take advice from their professional financial advisors before entering into any transaction or making a financial decision, without relying on anything contained hereinabove, or views given as addendum or comments hereafter. The author shall not be responsible or liable, directly or indirectly, for any loss or damage, including loss of profits, caused to the reader, or any other person or third party, whether pecuniary or otherwise, whether in present or in future, whether incurred or probable. Any replication of the contents herein is strictly prohibited except with the prior written consent of the author.
Comment:
Forgot to mention, I have assumed 0% growth in perpetuity, to remain conservative. Actually should be atleast 2%-3%, which if deducted from Ke, will give higher valuation.
Trade closed: target reached