South32 can extract efficiencies through focus, but the China commodity bust is a stiff headwind.
We maintain our AUD 1.70 per share fair value estimate for South32 with the first-half result largely as expected. The shares are overvalued, pricing in ongoing commodity price strength which we think is unlikely to be sustained. We think it will be challenging for South32 to maintain earnings at current levels as commodity prices normalise as China’s 2016 economic stimulus wanes. For coking and thermal coal, we also see a supply response as China loosens domestic production constraints. Longer ...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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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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