Avior Capital Markets - South32 Ltd. (S32) South32 | Shareholder returns lagging FCF generation

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Avior Capital Markets

Matthew Shields

South32 | Shareholder returns lagging FCF generation

South32's (S32) H1 '18 results were mixed. While we were expecting the announcement of a special dividend, we were underwhelmed by the quantum given the Group's strong net cash position. We estimate that S32 is trading on a one-year rolled forward Free Cash Flow (FCF) yield of c.7%. Going forward, we believe that the Group should be able to distribute all its FCF generate to shareholders. However, at the current rate of committed shareholder returns (through share buybacks and special dividends), we estimate that FCF generation could result in the Group maintaining its current net cash position, well above Group target

16/02/2018 12 EN

Underlying

South32 Ltd.

South32 is engaged in mining and metal production from a portfolio of assets for the commodities of alumina, aluminium, bauxite, energy and metallurgical coal, manganese ore, manganese alloy, nickel, silver, lead and zinc. As of June 30 2016, Co. operated 10 segments, which were comprised of: Worsley Alumina, South Africa Aluminium, Brazil Alumina, Mozal Aluminium, South Africa Energy Coal, Illawarra Metallurgical Coal, Australia Manganese, South Africa Manganese, Cerro Matoso, and Cannington.

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AU000000S320 Australian Securities Exchange Australia

Provider

Avior Capital Markets

Avior is a globally recognised capital markets research and trading firm, with the broadest research coverage within the region, with 100+ SA and 20+ SSA companies under coverage. Avior services clients from offices in London, Cape Town and Johannesburg.

Our research quality is consistently recognised in local and global surveys, with 18 analysts currently rated in their respective sectors (FM 2017). Value add through in-depth, innovative, high quality and consistent research with comprehensive underlying fundamental modelling supported by regular analyst and roadshow interactions.

Avior has proven that by working closely with our clients we can mutually develop dominant positions in certain sectors, going from strength to strength. Avior has a dedicated ESG team, having been ranked #1 in Corporate Governance research since 2008.

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Analysts

Matthew Shields

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