Cost Pressures Manifest in South32’s First-Half Result, Shares Still Overvalued
We maintain our AUD 2.05 per share fair value estimate for no-moat-rated South32. All else equal, we would have increased our fair value estimate to AUD 2.35 per share, due to higher near-term coal and manganese prices and the increased spot prices for zinc, lead, and nickel. However, the first-half result showed significant cost pressures. Underlying EBIT grew only 4.8% to USD 724 million, despite higher prices adding USD 702 million, or 22%, to revenue compared with a year ago. Weak volumes at...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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