Morningstar | Soft Finish to Fiscal 2019 for South32 but AUD 3.00 per Share FVE Retained
The sell-off in base metals, thermal coal, aluminium and alumina, and manganese prices has been a key driver of the decline in South32’s share price. It peaked at AUD 4.25 in October 2018 and now sits about 30% lower around AUD 3.00 per share. The S&P/ASX 200 index has increased almost 7% in the same period. With the lower share price, South32’s shares are fairly valued and trade in line with our unchanged AUD 3.00 per share fair value estimate for no-moat-rated South32.Fourth-quarter production was slightly softer than we expected overall. Alumina, energy coal and Australian manganese output all fell short of our forecasts. Higher South African manganese production, robust output from Cannington and a stronger recovery in metallurgical coal after a series of disruptions were partial offsets. But better metallurgical coal production is yet to flow through to sales volumes.
Realised fiscal 2019 prices for alumina, energy coal, and manganese were lower than expected. This impacts near-term earnings but not sufficiently to alter our fair value estimate. The lower price realisations may in part reflect the timing of the decline in global prices. The falls largely occurred in the second half of fiscal 2019. This can impact actual prices for volumes from the first half of fiscal 2019, which were only estimated at the time and yet to finalise, as well as the estimates for prices for second-half volumes. For many commodities, there is typically a lag of a few months between the sale, that is, the ship sailing, and its completion, when the price is finalised. Price changes in the interim impact sales revenue and profits.
South32 has a financial position with net cash at end December 2018 of USD 680 million or AUD 0.19 per share. Barring new acquisitions or investments, we expect South32 to return excess cash to shareholders, primarily through dividends. We forecast total dividends of AUD 0.20 per share in fiscal 2019 and AUD 0.24 per share in fiscal 2020.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
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.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.