- •Contents
- •Investment summary
- •Reporting schedule
- •Earnings revisions
- •Reporting trends: 2H18E vs 2H17
- •Reporting trends 2H18E vs 1H18
- •Results previews
- •Commodity price and exchange rate forecasts
- •Peer comp charts
- •African Rainbow Minerals
- •Alrosa
- •Anglo American
- •Assore
- •Exxaro
- •Glencore
- •Kumba Iron ore
- •NorNickel
- •Rio Tinto
- •Rusal
- •Vale
- •Gold Fields
- •Harmony
- •Polymetal
- •Anglo American Platinum
- •Lonmin
- •Northam
- •Royal Bafokeng Platinum
- •Acron
- •PhosAgro
- •Evraz
- •Disclosures appendix
vk.com/id446425943
Metals & Mining
Results book – 2H18
This report contains a reporting schedule and results previews for the metals & mining companies under our coverage with a reporting period of December 2018.
Our neutral view on the miners
We believe the capital cycle favours rising medium-term returns for diversified miners as companies are not investing enough to maintain production over the medium-to- longer term. Management teams continue to focus on value-creation, rather than volume growth, which has been value-destructive historically. Efficiency and productivity enhancements and a recovery in commodity prices have resulted in strong cash-flow generation. Most balance sheets are now comfortable, in our view, and we forecast attractive dividends. However, we are cautious about a potential near-term economic slowdown and the negative impact it may have on commodity demand.
Expected key reporting trends in 2H18
We believe ‘value over volume’ will continue to be a key theme this reporting season. We forecast 8% YoY earnings growth for the sector in 2H18, despite volumes remaining flat, helped by weaker producer currencies and efficiency gains. We forecast a 17% decline in net debt due to strong FCF generation. We believe cash returns to shareholders may continue to improve due to comfortable balance sheets and strong cash generation; we forecast a 50% increase in dividends YoY. However, we forecast a 32% increase in capex from last year’s depressed base, to bring capex closer to the levels required to maintain production over the long term.
Minor earnings revisions
Figures 4 and 5 summarise changes to our earnings forecasts as we incorporate recently reported financial and production results and guidance changes. Our TPs and ratings are unchanged.
Key risks to our investment stance
Key risks to our investment stance include: 1) weaker-than-forecast commodity prices; 2) stronger-than-forecast producer currencies; 3) resumption of valuedestructive growth capex; 4) adverse regulatory changes in countries where the miners operate, which could erode FCF; and 5) sanctions. Conversely, if any of these key factors are more positive than we forecast, there could be upside risk to our earnings forecasts and valuations.
Sector update
Equity Research 6 February 2019
Metals & Mining Global
Johann Pretorius +27 (11) 750 1450
JPretorius2@rencap.com
Steven Friedman +27 (11) 750 1481
SFriedman@rencap.com
Kabelo Moshesha +27 (11) 750 1472
KMoshesha@rencap.com
Siphelele Mhlongo +27 (11) 750 1420
SMhlongo@rencap.com
Derick Deale
+27 (11) 750 1458 DDeale@rencap.com
Summary sector ratings and TPs (ranked by total potential 12M return, including estimated dividends)
Company |
TP |
Current |
Rating |
|
price* |
||||
|
|
|
||
Rusal, HKD |
6.0 |
3.3 |
BUY |
|
Evraz, GBp |
640.0 |
507.6 |
BUY |
|
PhosAgro, $ |
16.0 |
13.5 |
BUY |
|
Norilsk, $ |
24.0 |
20.8 |
BUY |
|
NLMK, $ |
27.0 |
24.0 |
BUY |
|
MMK, $ |
10.1 |
8.6 |
BUY |
|
Alrosa, RUB |
109.0 |
99.5 |
BUY |
|
Polyus, RUB |
6,300.0 |
5,521.5 |
BUY |
|
Rio Tinto, GBP |
48.0 |
42.3 |
BUY |
|
Exxaro, ZAR |
170.0 |
156.5 |
BUY |
|
ARM, ZAR |
160.0 |
147.3 |
BUY |
|
Impala, ZAR |
45.0 |
38.8 |
BUY |
|
AMSA, ZAR |
4.0 |
3.5 |
HOLD |
|
South32, ZAR |
37.0 |
33.9 |
HOLD |
|
BHP, ZAR |
315.0 |
297.3 |
HOLD |
|
Fortescue, AUD |
6.0 |
5.8 |
BUY |
|
Glencore, ZAR |
55.0 |
53.1 |
HOLD |
|
Vale, $ |
13.6 |
12.6 |
HOLD |
|
Polymetal, GBP |
8.6 |
8.6 |
HOLD |
|
Acron, RUB |
4,600.0 |
4,670.0 |
HOLD |
|
Anglo, ZAR |
340.0 |
345.2 |
HOLD |
|
Assore, ZAR |
320.0 |
346.8 |
HOLD |
|
Sibanye, ZAR |
11.1 |
12.1 |
HOLD |
|
Kumba, ZAR |
270.0 |
340.6 |
SELL |
|
RBPlats, ZAR |
25.0 |
28.8 |
SELL |
|
Amplats, ZAR |
540.0 |
636.0 |
HOLD |
|
Gold Fields, ZAR |
43.0 |
53.8 |
SELL |
|
Northam, ZAR |
40.0 |
48.5 |
SELL |
|
Harmony, ZAR |
21.0 |
26.9 |
SELL |
|
Lonmin, ZAR |
7.0 |
9.6 |
SELL |
|
AngloGold, ZAR |
110.0 |
190.0 |
SELL |
Note: Priced at market close on 1 February 2019.
Source: Thomson Reuters Datastream, Renaissance Capital estimates
Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital.
vk.com/id446425943
Contents
Investment summary |
3 |
Reporting schedule |
6 |
Earnings revisions |
7 |
Reporting trends: 2H18E vs 2H17 |
8 |
Reporting trends 2H18E vs 1H18 |
10 |
Results previews |
11 |
Commodity price and exchange rate forecasts |
42 |
Peer comp charts |
43 |
African Rainbow Minerals |
44 |
Alrosa |
45 |
Anglo American |
46 |
Assore |
47 |
BHP |
48 |
Exxaro |
49 |
Fortescue |
50 |
Glencore |
51 |
Kumba Iron ore |
52 |
NorNickel |
53 |
Rio Tinto |
54 |
Rusal |
55 |
South32 |
56 |
Vale |
57 |
AngloGold |
58 |
Gold Fields |
59 |
Harmony |
60 |
Polymetal |
61 |
Polyus |
62 |
Sibanye |
63 |
Anglo American Platinum |
64 |
Impala |
65 |
Lonmin |
66 |
Northam |
67 |
Royal Bafokeng Platinum |
68 |
Acron |
69 |
PhosAgro |
70 |
ArcelorMittal SA |
71 |
Evraz |
72 |
MMK |
73 |
NLMK |
74 |
Disclosures appendix |
75 |
Renaissance Capital
6 February 2019
Metals & Mining
2