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S32

South 32 FY19 results – Earnings Down Substantially And Slightly Disappointing

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

South 32 Ltd (ASX: S32)  is an international mining and metals company that has a number of operations in Australia, South Africa and South America. South 32 specialises in producing bauxite, alumina, aluminium, energy and metallurgical coal, manganese, nickel, silver, lead and zinc. South 32 was demerged from BHP in 2015, and since has developed into one of the few global mid-tier diversified mining companies. South 32 has a market cap of $A16.2 billon.

SOUTH32 - FY19

What are the results from South 32 FY19?

Today (Thursday 22 August 2019) South 32 released its FY19 annual results. The main points are as follows:

  • Revenue for FY19 is US$7,274 million, down 4 per cent from FY18.
  • Profit after tax for FY19 is US$389 million, down 71 per cent from FY18.
  • Basic earnings per share for FY19 is US 7.7 cents, down 70 per cent from FY18.
  • Final dividend of US 2.8 cents per share (fully franked). This represents 40 per cent of underlying earnings.

Specific results on company operations are as follows:

  • Worsley Alumina (86 per cent share) Alumina production for FY19 is 3,795 (kt), flat from FY18.
  • Brazil Alumina (Alumina 36 per cent share, Aluminium 40 per cent share) Alumina production for FY19 is 1,255 (kt), down 3.7 per cent.
  • Hillside Aluminium (100 per cent) Aluminium production for FY19 is 715 (kt), down 0.4 per cent from FY18.
  • Mozal Aluminium (47.1 per cent share) Aluminium production for FY19 is 267 (kt), down 1.4 per cent.
  • South Africa Energy Coal (92 per cent share) Energy coal production for FY19 is 24,979 (kt), down 8.4 per cent from FY18.
  • Illawarra Metallurgical Coal (100 per cent share) Metallurgical coal production for FY19 is 5,350 (kt), up 69 per cent from FY18.
  • Australia Manganese (60 per cent share) Manganese ore production for FY19 is 3,349 (kwmt), down 1.3 per cent from FY18.
  • South Africa Manganese (Ore 44.4 per cent share, Alloy 60 per cent share) Manganese ore production and Manganese alloy production for FY19 is 2,187 (kmmt) and 69 (kt) respectively, up 1.9 per cent and down 12.6 per cent respectively.
  • Cerro Matoso (99.9 per cent share) Ore mined for FY19 is 2,278 (kwmt), down 39 per cent from FY18.
  • Cannington (100 per cent share) Ore mined for FY19 is 2,725 (kwmt), up 10.6 per cent from FY18.

 

What were the drivers of this result?

The main driver of the poor result from South 32 was due to weak aluminium and thermal coal prices. Production volumes were mainly flat year-on-year, with the exception of metallurgical coal.

 

What is the outlook for South 32?

South 32 management noted that production volume forecast to rise by 3 per cent for FY20.

Additionally, South 32 management noted, “Subsequent to the end of the year, we have entered into exclusive negotiations with Seriti Resources to finalise its offer to acquire our South Africa Energy Coal business. The divestment will significantly reduce the Group’s sustaining capital intensity, further strengthen our balance sheet and improve margins”.

South 32 announced an increase of US$250 million to US$1.25 billion in its on market buyback of South 32 shares. South 32 intends to purchase around US$264 million shares on the market by 4 September 2020.

 

What is the market reaction?

The initial market reaction to South 32 FY19 is slightly negative. South 32 share price is down around 1.6 per cent and is currently trading at around A$2.7 (11.50am, 22 August). South 32 has a P/E ratio in the low-teens and an annual dividend yield of 5.6 per cent (fully franked).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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