South32 (S32) could hardly have chosen a less auspicious time to release its maiden half-year results, with mining commodities under renewed pressure after the latest equities sell-off in China. The figures came in slightly below analysts' expectations, with revenues down 7 per cent to $7.74bn (£4.93bn) on a pro-forma basis, while earnings were hit by $1.39bn in impairments taken against the group’s manganese and coal operations. Indeed, the miner flagged a possible restructure of its underperforming South African manganese division.
Although the BHP spin-off did increase underlying cash margins significantly, management still intends to reduce costs by $350m a year over the next three years and cut capital expenditure 9 per cent to $650m to accommodate deteriorating market conditions. The focus on reducing cashburn is prudent, given the outlook on prices. And with gearing below 4 per cent and around $658m in cash at the end of June, the miner’s balance sheet gives no cause for concern. Management has committed to a payout ratio of at least 40 per cent of underlying earnings going forward.
It's a buyer's market in commodities. Chief executive Graham Kerr hasn't ruled out opportunistic deals that might fall the group's way, although he isn't looking to snare the growing list of Australian coal assets up for sale.
JPMorgan Cazenove gives a sum-of-the-parts valuation of A$2.80 (128p) and expects full-year EPS of 8¢ a share, falling to 3¢ in 2016.
| SOUTH32 (S32) | ||||
|---|---|---|---|---|
| ORD PRICE: | 65.75p | MARKET VALUE: | £3.5bn | |
| TOUCH: | 65.5-65.75p | 12-MONTH HIGH: | 120p | LOW: 64p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 207¢ | NET DEBT: | 4% | |
| Half-year to 30 Jun | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2014 | 0.85 | -74.0 | nil | nil |
| 2015 | 3.84 | -398 | -26.9 | nil |
| % change | +350 | - | - | - |
£1=$1.57 | ||||
