Two High-Conviction ASX Stocks with Strong Growth Potential

In this article, we’ll dive into two companies that are demonstrating impressive performance and have solid growth potential. One is making significant strides with its robust earnings, strategic acquisitions, and a clear commitment to sustainability and innovation. This focus not only enhances its position in the mining and infrastructure space but also aligns with growing market demand for eco-friendly solutions. The other company is thriving thanks to its strong operational track record and well-defined growth strategy, particularly in the gold sector. With solid fundamentals and a strategic approach to expansion, both are in prime positions to benefit from current market trends, making them strong contenders to capture long-term growth. We Retain Buy Rating on Orica’s (ASX: ORI) Strong Earnings, Innovation, and Sustainability Leadership Key Takeaways We retain our Buy rating on Orica (ASX: ORI), driven by its strong earnings growth, expanding digital solutions, and strategic acquisitions in high-value markets like specialty mining chemicals. The company continues to benefit from increasing adoption of premium blasting technologies, while its sustainability leadership, including a 43% reduction in emissions, enhances long-term competitiveness. Robust cash flow, disciplined capital management, and a solid FY2025 outlook further reinforce Orica’s strong investment case, positioning it for sustained profitability despite macroeconomic challenges. _____ We continue to see Orica as an excellent long-term investment, backed by its leadership in mining and infrastructure solutions, strong earnings growth, and expansion into high-value digital and specialty chemical markets. As a global supplier of explosives, blasting systems, and geotechnical monitoring solutions, Orica is in a prime position to benefit from the increasing demand for efficiency, automation, and sustainability in mining operations. Consistent Financial Growth and Strong Cash Flow Orica’s FY2024 results reinforce our confidence in its ability to deliver sustained growth. Net profit after tax came in at $525 million, a significant increase from $296 million the previous year. EBIT also climbed 15% to $806 million, with earnings improving across all segments. Blasting Solutions led the way with $755 million in EBIT, reflecting stronger adoption of premium products and digital technologies. Specialty Mining Chemicals delivered impressive growth as well, up 36% to $69 million, thanks to the integration of Cyanco. Meanwhile, Digital Solutions posted a 29% increase in EBIT, reaching $70 million, as demand for geotechnical monitoring and digital mining solutions continues to rise. Beyond the headline numbers, Orica’s cash generation remains strong, with net operating cash flow of $808 million supporting ongoing investments and shareholder returns. Return on net operating assets improved to 12.8%, and earnings per share (pre-significant items) rose to 86.4 cents. The company declared a final dividend of 28 cents per share, bringing the full-year payout to 47 cents per share, reflecting a solid 56% payout ratio. Technology and Innovation Driving Competitive Advantage One of the key reasons we remain bullish on Orica is its continued focus on technology and innovation. Its WebGen and 4D blasting systems are setting new industry standards, with miners increasingly adopting these solutions to improve safety and efficiency. The Digital Solutions segment has been a standout, with strong customer demand for its data-driven mining technologies. Given the accelerating digital transformation in the mining sector, we see further upside as Orica continues to expand its automation and predictive analytics capabilities. Strategic Acquisitions Strengthening Market Position The company’s recent acquisitions further strengthen its long-term prospects. The Cyanco acquisition, completed in April 2024, enhances Orica’s position in the high-value sodium cyanide market, which is crucial for gold mining. With a full-year contribution expected in FY2025, we see additional upside in Specialty Mining Chemicals. Meanwhile, the February 2024 acquisition of Terra Insights expands Orica’s geotechnical monitoring capabilities, increasing its exposure to high-margin, recurring revenue streams. Both acquisitions align with Orica’s strategy of diversifying beyond traditional explosives into higher-value specialty chemicals and digital solutions. Sustainability and Decarbonisation Efforts Gaining Momentum Sustainability is another key factor supporting Orica’s long-term growth. The company is ahead of schedule on its decarbonisation strategy, having already achieved a 43% reduction in Scope 1 and 2 emissions from its 2019 baseline. The installation of emissions abatement reactors at Yarwun has accelerated its climate commitments, positioning Orica as a leader in sustainable mining solutions. This is becoming an increasingly important differentiator as mining companies prioritize ESG-friendly suppliers. FY2025 Outlook and Growth Drivers Looking ahead to FY2025, we expect Orica to continue delivering strong earnings growth. The demand for premium blasting solutions should remain robust, while the full-year impact of the Cyanco and Terra Insights acquisitions will further drive Specialty Mining Chemicals and Digital Solutions. The company is also focused on cost initiatives to offset inflationary pressures and higher energy costs. Capital expenditure to remain broadly in line with FY2024 Depreciation and amortisation expected between $490 million and $510 million Net finance costs forecast at $190 million to $200 million, primarily due to acquisition-related debt RONA target of 13% to 15% over the next three years, up from its previous 12% to 14% target With a strong balance sheet, consistent earnings growth across all segments, and a strategic push into digital solutions and specialty chemicals, Orica remains one of the most compelling long-term investment opportunities in the sector. The company’s ability to generate high-quality earnings while advancing sustainability and innovation makes it well-positioned for continued success. We maintain our view that Orica is a high-quality long-term buy. Northern Star Resources Ltd (ASX: NST) – High Conviction Buy: Target Price of $20 per Share Key takeaways Northern Star Resources, the gold producer, remains strong, and we’re sticking with our high conviction buy and $20 per share target price. The company is doing great operationally, with solid cash flow and strong production across key assets like KCGM, Yandal, and Pogo. The KCGM Mill Expansion is on track and should ramp up production in the coming years, plus the De Grey acquisition adds even more growth potential. With a healthy balance sheet, a share buyback program in place, and the gold price working in its favour, Northern Star is in a great spot for long-term growth. ___ Northern Star Resources Limited (ASX: NST) has been firing on all cylinders, showing solid operational performance, and it appears it’s well-positioned to keep that momentum going. With a strong track record, disciplined capital management, and a clear growth strategy, we think Northern Star is ready to unlock further value for shareholders. Solid Operational Performance Boosts Cash Flow Northern Star had a standout first half of FY25, with record net mine cash flow. This is a testament to the company’s operational strength and its ability to capitalize on the current strong gold price. The $72 million in free cash flow generated in the first half is just the beginning, and we expect that to rise as the company sells more gold in the second half of the year. Strong performances across the board – from KCGM, to Yandal, and Pogo – show that Northern Star is on track to meet its production and cost guidance for FY25. The KCGM operations (home of the famous Super Pit) are gearing up for an uptick in production thanks to completed East Wall remediation and ramped-up underground development. At the same time, both Jundee and Thunderbox are running at full capacity, helping drive a record net mine cash flow. Meanwhile, Pogo is also performing well, with the mill running at a 1.5Mtpa annualized rate, and contributing solid gold sales. Growth Strategy Fully Funded – 2Mozpa by FY26 Still On Track Northern Star remains committed to hitting its 2Mozpa target by FY26, and the good news is it’s well-funded to make it happen. The company has a disciplined growth strategy in place, focusing on organic expansion, and we’re confident in its ability to deliver on this. One of the key drivers is the KCGM Mill Expansion, which is moving ahead as planned. The expanded mill capacity should help KCGM increase production to 650koz by FY26, with the potential to reach 900koz by FY29 once the ramp-up is complete. We’re forecasting $500-530 million in capital expenditure for FY25 to support this expansion, and we expect the company to continue making progress with major works, including the installation of grinding, crushing, and flotation cells. Furthermore, the company is on track to acquire De Grey Mining, subject to approvals, which would add the promising Hemi project to Northern Star’s portfolio. This development is expected to become a tier-1, low-cost production asset, aligning with the company’s strategy to grow its high-quality gold production in the future. Capital Discipline & Shareholder Returns Northern Star has a strong balance sheet, and we appreciate its commitment to capital discipline. The company is generating plenty of cash from its operations and is keeping its growth initiatives fully funded without relying on external financing. As of December 31, 2024, Northern Star had $265 million in net cash, and a combined $1,215 million in cash and bullion, which gives it plenty of room to continue investing in growth. A key part of Northern Star’s shareholder return strategy is its on-market share buyback program. The company has repurchased 24.8 million shares at an average price of $10.38, spending $257 million on this initiative. It’s clear that management believes in the company’s value and is committed to rewarding shareholders. FY25 Outlook: Positive Momentum Ahead Looking ahead, we expect Northern Star to continue its strong performance in FY25. The company is on track to sell between 1,650-1,800koz of gold, with AISC between $1,850-2,100/oz. Production is expected to be weighted toward the second half of the year as higher-grade material from KCGM comes online, which should help the company achieve its guidance. At KCGM, Northern Star is ramping up production with more high-grade mill feed, and we expect it to continue delivering strong results. The company is also investing in underground development to meet the production targets, and we’re looking at a target of 650koz from KCGM by FY26. At Yandal, Jundee’s performance is expected to normalize in FY25 with better grades and mill availability, while Thunderbox will continue to deliver stable performance. The satellite feed at Thunderbox will also ramp up, and we see throughput increasing to 4Mtpa by FY26. Meanwhile, Pogo will continue operating at its targeted throughput rate of 1.4Mtpa, and ongoing mine development will keep things on track for the rest of FY25. Gold Price Support Remains Strong We’re also optimistic about the current gold price environment, which we expect to continue benefiting Northern Star. While the company’s AISC has gone up slightly due to ongoing growth projects, its strong operational performance and high gold prices are helping offset those costs. Northern Star’s portfolio of quality assets is a great hedge against market volatility, and we expect that to continue supporting the company’s growth over the long term. A High-Conviction Buy Northern Star remains one of our top picks in the gold space. The company’s strong operational performance, disciplined growth strategy, and solid financial position provide us with confidence that it’s on the path to delivering significant value to shareholders. The KCGM Mill Expansion, the potential acquisition of De Grey Mining, and the company’s growing portfolio of high-quality assets provide a solid foundation for growth, and we believe the stock is well-positioned for long-term success. With all of this in mind, we reaffirm our buy rating and maintain our target price of $20 per share.