Vedanta (VED) is the latest resources group to register the impact of falling commodity prices. The India-focused business pulled its half-year dividend after a one-off tax hike contributed to widening losses. The weakness in Vedanta's core markets was reflected in a 44 per cent reduction in operating profit, along with a stark decline in the cash margin - down 10 percentage points from the 2014 half year to 23 per cent.
It wasn't all bad news, though. In common with industry peers, the group has been streamlining its capital commitments. As a result, it has managed to pare back net debt by 17 per cent from a year ago. And while shareholders will be disappointed by the suspension of the dividend, they should also note that Vedanta generated free cash flow of $1.3bn (£844m). This suggests the group can realistically reinstate distributions in fairly short order once commodity prices rebound.
There was also heartening news on the operating front. Oil and gas volumes are on the rise, while utilisation rates in the group's copper business remain high. Vedanta also delivered record first-half production from its zinc mines. This could prove significant, as many believe the global zinc market will move back into deficit during 2016, paving the way for price increases.
JPMorgan Cazenove predicts an underlying loss of $320m for the year to March 2016, before a return to profit of $120m in FY2017.
| VEDANTA RESOURCES (VED) | ||||
|---|---|---|---|---|
| ORD PRICE: | 493p | MARKET VALUE: | £1.3bn | |
| TOUCH: | 493-496p | 12-MONTH HIGH: | 841p | LOW: 354p |
| DIVIDEND YIELD: | 5.3% | PE RATIO: | na | |
| NET ASSET VALUE: | 322¢ | NET DEBT: | 68% | |
| Half-year to 30 Sep | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2014 | 6.46 | 640 | -4.7 | 23 |
| 2015 | 5.70 | 244 | -118 | nil |
| % change | -12 | -62 | - | - |
£1=$1.54 | ||||
