Join our community of smart investors

South32 to hive off SA coal

The BHP spin-off has boosted production, but prices aren't working in its favour
August 22, 2019

Leaving aside the effects of share buybacks, underlying earnings for South32 (S32) decreased by a quarter in the year to June, as rising production volumes were offset by lower aluminium and thermal coal prices.

IC TIP: Hold at 147.88p

Profitability was also constrained by $504m (£417m) in impairments, including the de-recognition of deferred taxes attributable to the diversified miner’s South African coal business, which has been run as a separate unit since April 2018 in preparation for a sale. To this end, South32 is now in exclusive negotiations with Seriti Resources to finalise terms.

Looking ahead, mining prices could remain under pressure if China’s economy stutters due to the ongoing US trade dispute, but that is beyond the influence of management. The group anticipates a 3 per cent rise in overall volumes through FY2020, while weaker producer currencies and lower input costs are expected to dampen operating costs through the year.

Consensus estimates are for cash profits of $1.93bn for June 2020, giving adjusted EPS of 17.2¢, rising to $1.99bn and 17.7¢ in FY2021.

SOUTH32 (S32)    
ORD PRICE:147.88pMARKET VALUE:£ 7.40bn
TOUCH:147.54-147.88p12-MONTH HIGH:235pLOW: 147p
DIVIDEND YIELD:4.4%PE RATIO:23
NET ASSET VALUE:203¢NET CASH:$612m
Year to 30 JuneTurnover ($bn)Pre-tax profit ($bn)Earnings per share (¢)Dividend ** per share (¢)
2015 *7.740.520.50nil
20165.23-1.55-30.31.0
20176.161.6223.210.0
20187.551.6225.810.5
20197.270.807.77.9
% change-4-50-70-25
Ex-div:12 Sep   
Payment:10 Oct   
£1 = $1.21. * Pro-forma figures, pre-demerger. ** Excludes special dividends of 3¢ for FY2018, and 1.7¢ for FY2019.