vk.com/id446425943
Exxaro – BUY
Renaissance Capital
6 February 2019
Metals & Mining
Figure 82: Exxaro, ZARmn (unless otherwise noted)
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Exxaro |
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EXXJ.J |
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Target price, ZAR: |
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170 |
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Market capitalisation, ZARmn: |
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56,394 |
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Last price, ZAR: |
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157 |
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Enterprise value, ZARmn: |
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57,237 |
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Potential 12-month return: |
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18.2% |
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Dec-YE |
2016 |
2017 |
2018E |
2019E |
2020E |
Dec-YE |
2016 |
2017 |
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2018E |
2019E |
2020E |
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Income statement |
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Balance sheet |
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Revenue |
20,897 |
22,813 |
24,963 |
27,201 |
29,123 |
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Net operating assets |
13,458 |
21,820 |
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23,726 |
26,777 |
28,507 |
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Underlying EBITDA |
6,139 |
7,207 |
8,238 |
8,615 |
7,931 |
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Investment in associates |
22,776 |
17,289 |
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18,792 |
18,817 |
18,875 |
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Underlying EBIT |
4,941 |
5,814 |
6,763 |
7,125 |
6,245 |
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Investments |
193 |
186 |
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1,551 |
1,551 |
1,551 |
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Net operating profit |
4,623 |
975 |
6,679 |
7,125 |
6,245 |
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Equity |
35,875 |
40,103 |
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42,558 |
45,927 |
47,541 |
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Net interest |
-628 |
-609 |
-512 |
-758 |
-891 |
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Minority interest |
-788 |
-738 |
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-690 |
-664 |
-640 |
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Equity accounted income |
2,764 |
3,952 |
3,301 |
4,113 |
3,012 |
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Net debt |
1,340 |
-70 |
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2,201 |
1,882 |
2,032 |
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Taxation |
-1,179 |
-1,542 |
-1,710 |
-1,783 |
-1,499 |
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Balance sheet ratios |
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Minority interest in profit |
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-12 |
-50 |
-96 |
-129 |
-121 |
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Net profit for the year |
5,679 |
5,982 |
7,692 |
8,568 |
6,747 |
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Gearing (net debt/(net debt+equity)) |
3.6% |
-0.2% |
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4.9% |
3.9% |
4.1% |
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Headline earnings |
4,621 |
1,560 |
7,577 |
8,568 |
6,747 |
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Net debt to EBITDA (<1.5x) |
0.2x |
0.0x |
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0.2x |
0.1x |
0.2x |
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Diluted HEPS, ZAR |
15.91 |
4.50 |
23.25 |
26.07 |
20.53 |
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RoCE |
21.8% |
25.8% |
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22.4% |
22.7% |
17.2% |
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RoIC |
14.6% |
17.8% |
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20.0% |
19.5% |
14.5% |
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Thomson Reuters consensus, ZAR |
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27.39 |
28.21 |
25.01 |
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RoE |
13.0% |
4.1% |
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18.3% |
19.4% |
14.4% |
DPS declared, ZAR |
5.00 |
19.55 |
11.30 |
16.20 |
12.40 |
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Cash flow statement |
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Underlying EBIT |
3,414 |
4,145 |
3,732 |
3,802 |
4,154 |
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Operating cash flow |
4,703 |
7,093 |
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10,161 |
12,064 |
10,095 |
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Eskom coal |
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Capex (net of disposals) |
-2,780 |
-3,921 |
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-6,070 |
-6,246 |
-4,826 |
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EBIT margin |
28% |
35% |
28% |
28% |
28% |
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Other cash flows |
-3,161 |
2,089 |
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624 |
0 |
0 |
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Export and other coal |
1,504 |
1,935 |
3,218 |
3,592 |
2,375 |
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FCF |
-1,238 |
5,261 |
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4,715 |
5,818 |
5,269 |
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EBIT margin |
18% |
18% |
28% |
26% |
17% |
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Equity shareholders' cash |
2,318 |
5,125 |
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3,212 |
5,518 |
4,983 |
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Ferrous |
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-13 |
46 |
13 |
12 |
12 |
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Dividends and share buy-backs |
-625 |
-3,715 |
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-5,483 |
-5,199 |
-5,132 |
Corporate and other |
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36 |
-312 |
-201 |
-281 |
-296 |
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Excess cash |
1,693 |
1,410 |
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-2,271 |
319 |
-150 |
Underlying EBIT |
4,941 |
5,814 |
6,763 |
7,125 |
6,245 |
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Cash flow ratios |
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Group EBIT margin |
24% |
25% |
27% |
26% |
21% |
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Pigment and mineral sands |
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413 |
1,534 |
658 |
486 |
417 |
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Working capital days |
19 |
16 |
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22 |
21 |
20 |
EBIT margin |
28% |
35% |
28% |
28% |
28% |
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Capex/EBITDA |
45.3% |
54.4% |
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73.7% |
72.5% |
60.8% |
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Iron ore |
3,093 |
3,334 |
3,362 |
4,422 |
3,063 |
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FCF yield |
-4.4% |
18.2% |
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13.3% |
14.4% |
12.9% |
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EBIT margin |
28% |
35% |
28% |
28% |
28% |
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Cash conversion |
0.5x |
3.3x |
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0.4x |
0.6x |
0.7x |
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Other equity accounted |
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860 |
1,060 |
339 |
380 |
365 |
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Equity shareholders' yield |
8.4% |
17.3% |
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9.4% |
14.0% |
12.7% |
Proportionately consolidated EBIT |
9,307 |
11,742 |
11,121 |
12,413 |
10,090 |
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Valuation ratios |
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Income statement ratios |
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P/E multiple |
4.9x |
26.2x |
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5.8x |
6.0x |
7.6x |
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EBITDA margin |
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29% |
32% |
33% |
32% |
27% |
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Dividend yield |
6.4% |
16.6% |
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8.3% |
10.4% |
7.9% |
EBIT margin |
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24% |
25% |
27% |
26% |
21% |
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EV/EBITDA |
4.1x |
3.3x |
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3.3x |
3.2x |
3.7x |
HEPS growth |
185% |
-61% |
501% |
13% |
-21% |
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P/B |
0.8x |
1.0x |
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1.0x |
1.1x |
1.1x |
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Dividend payout ratio on headline earnings |
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39% |
327% |
46% |
68% |
66% |
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NAV per share, ZAR |
100 |
121 |
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131 |
140 |
145 |
Input assumptions |
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Valuation |
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ZAR/$ |
14.70 |
13.31 |
13.24 |
14.31 |
14.14 |
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Calculation of target price |
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ZARmn |
ZAR/sh |
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Iron ore fines (62% Fe, CIF China), $/t |
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58 |
71 |
66 |
75 |
67 |
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Coal at DCF fair value |
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25,667 |
76 |
Thermal coal benchmark, $/t |
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64 |
85 |
98 |
93 |
86 |
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Sishen Iron Ore Company at DCF fair value |
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20,504 |
61 |
Export realisations, $/t |
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51 |
69 |
81 |
81 |
79 |
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Tronox at market value |
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6,386 |
19 |
Pigment equivalent units, $/t |
2,211 |
2,745 |
2,970 |
3,088 |
3,209 |
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50% interest in Moranbah South at $100mn |
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1,331 |
4 |
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Other at DCF fair value |
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1,281 |
4 |
Required breakeven price |
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Attributable enterprise value |
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55,168 |
164 |
Export coal breakeven price, $/t |
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59 |
77 |
80 |
78 |
77 |
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Investments as at 31 December 2017 |
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186 |
1 |
Kumba Iron Ore breakeven price, $/t |
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29 |
40 |
35 |
37 |
40 |
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Net debt as at 31 December 2017 |
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70 |
0 |
Sales volumes, kt |
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Share issues (buy-backs) during 2018E |
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0 |
0 |
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Other |
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996 |
3 |
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Eskom coal - commercial |
15,229 |
15,151 |
13,974 |
12,622 |
15,826 |
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Equity value |
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56,420 |
167 |
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GMEP Eskom |
6,800 |
8,500 |
12,000 |
12,500 |
12,500 |
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Plus: one-year forward equity shareholders' cash |
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16 |
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Other domestic coal |
5,466 |
5,325 |
4,297 |
6,914 |
9,321 |
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Less: dividends paid |
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-14 |
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Export coal |
7,858 |
7,612 |
7,586 |
8,023 |
8,015 |
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One-year forward equity value |
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169 |
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Iron ore - Sishen Iron Ore Company |
8,497 |
8,979 |
8,652 |
8,875 |
8,900 |
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TP, rounded to |
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170 |
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Copper equivalent volumes, kt |
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577 |
567 |
487 |
526 |
577 |
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Share price on 1/2/2019 |
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157 |
Volume growth |
7.9% |
-1.7% |
-14.1% |
7.9% |
9.7% |
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Expected share price return |
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8.6% |
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Plus: expected dividend yield |
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9.6% |
Contribution to proportionately consolidated FY18E attributable underlying EBITDA |
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Total implied one-year return |
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18.2% |
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Pigment & Sands |
Other |
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Share price range, ZAR: |
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3% |
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6% |
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12-month high on 2/11/2018 |
162 |
12-month low on 13/3/2018 |
102 |
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Price move since high |
-3.2% Price move since low |
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53.6% |
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Iron ore |
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Calculation of discount rate |
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30% |
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WACC |
14.7% |
Cost of debt |
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10.0% |
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Risk-free rate |
9.0% |
Tax rate |
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28% |
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Equity risk premium |
5.0% After-tax cost of debt |
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7.2% |
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Coal |
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Beta |
1.30 |
Debt weighting |
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10% |
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61% |
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Cost of equity |
15.5% |
Terminal growth rate |
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3% |
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Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
49
vk.com/id446425943
Fortescue Metals Group – BUY
Renaissance Capital
6 February 2019
Metals & Mining
Figure 83: Fortescue Metals Group, $mn (unless otherwise noted) |
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Fortescue Metals Group |
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FMG.AX |
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Target Price, AUD: |
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6.00 |
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Market capitalisation, $mn: |
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13,035 |
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Share price, AUD: |
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5.84 |
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Enterprise value, $mn: |
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16,147 |
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Potential 12-month return: |
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11.4% |
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Jun-YE |
2017 |
2018 |
2019E |
2020E |
2021E |
Jun-YE |
2017 |
2018 |
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2019E |
2020E |
2021E |
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Income statement |
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Cash flow statement |
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Revenue |
8,447 |
6,887 |
7,702 |
8,647 |
8,147 |
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Operating cash flow |
4,482 |
1,807 |
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2,847 |
3,292 |
2,837 |
Underlying EBITDA |
4,728 |
3,182 |
3,591 |
4,187 |
3,551 |
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Growth capex |
-362 |
-383 |
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-620 |
-600 |
-300 |
EBIT |
3,450 |
1,873 |
2,330 |
2,539 |
1,677 |
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Maintenance capex |
-354 |
-507 |
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-580 |
-680 |
-876 |
Net interest |
-483 |
-628 |
-269 |
-245 |
-214 |
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Other movements |
-111 |
-72 |
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0 |
0 |
0 |
Taxation |
-874 |
-367 |
-598 |
-665 |
-424 |
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FCF |
3,655 |
845 |
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1,647 |
2,012 |
1,661 |
Minority interest in profit |
0 |
1 |
0 |
0 |
0 |
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Equity shareholders' cash |
3,317 |
406 |
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1,458 |
1,840 |
1,511 |
Net profit for the year |
2,093 |
879 |
1,463 |
1,629 |
1,039 |
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Dividends and share buy-backs |
-762 |
-885 |
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-856 |
-1,218 |
-1,017 |
Basic EPS, USc |
67.30 |
28.20 |
47.74 |
54.34 |
34.72 |
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Surplus (deficit) cash |
2,555 |
-479 |
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602 |
623 |
494 |
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Cash flow ratios |
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Thomson Reuters consensus EPS, USc |
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41.54 |
38.55 |
33.15 |
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DPS declared, USc |
33.93 |
17.82 |
27.00 |
39.00 |
29.00 |
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Working capital days** |
0.5 |
0.9 |
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12.4 |
10.9 |
10.6 |
Income statement ratios |
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Capex/EBITDA |
15.1% |
28.0% |
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33.4% |
30.6% |
33.1% |
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FCF yield |
23.6% |
5.6% |
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10.8% |
13.8% |
11.8% |
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EBITDA margin |
56% |
46% |
47% |
48% |
44% |
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Cash conversion |
1.6x |
0.5x |
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1.0x |
1.1x |
1.5x |
EBIT margin |
41% |
27% |
30% |
29% |
21% |
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Equity shareholders' yield |
25.8% |
3.4% |
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11.4% |
14.5% |
11.9% |
EPS growth |
112% |
-58% |
69% |
14% |
-36% |
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Valuation |
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Dividend payout ratio |
50% |
63% |
57% |
72% |
84% |
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AUD |
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Input assumptions |
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Calculation of target price |
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Net present value @ discount rate of 10% |
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6.03 |
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Iron ore (62%Fe, CIF China), $/t |
69.5 |
67.4 |
71.3 |
71.3 |
65.1 |
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Rounded to |
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6.00 |
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FMG average realisations, $/t |
53.5 |
43.6 |
48.5 |
53.8 |
50.8 |
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Share price on 1/2/2019 |
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|
5.84 |
Price realisation vs benchmark, % |
77% |
65% |
68% |
75% |
78% |
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Expected share price return |
|
|
|
|
|
2.7% |
C1 cash costs, $/t |
12.8 |
12.4 |
13.0 |
14.3 |
16.0 |
|
Plus: expected dividend yield |
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|
|
8.7% |
Freight - Australia to China, $/t |
5.5 |
7.2 |
8.1 |
8.1 |
7.4 |
|
Total implied one-year return |
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|
|
|
|
11.4% |
Breakeven 62% benchmark price, $/t |
43.8 |
51.6 |
53.5 |
50.7 |
49.3 |
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$/AUD |
0.75 |
0.78 |
0.72 |
0.75 |
0.80 |
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Share price range, AUD: |
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Sales volumes, mnt |
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12-month high on 1/2/2019 |
5.85 |
12-month low on 12/9/2018 |
3.52 |
|||
170.3 |
169.7 |
167.7 |
170.0 |
170.0 |
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Price move since high |
-0.2% |
Price move since low |
|
66.1% |
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FMG mine ore shipped |
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Calculation of discount rate |
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Equity share of the JV |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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Third party ore |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
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WACC |
9.9% |
Cost of debt |
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|
7.0% |
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Total volumes |
170.3 |
169.7 |
167.7 |
170.0 |
170.0 |
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Risk-free rate |
4.0% |
Tax rate |
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|
30% |
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Attributable Cu eq volumes, kt |
1,676 |
1,670 |
1,650 |
1,673 |
1,673 |
|
Equity risk premium |
5.0% After-tax cost of debt |
|
4.9% |
|||
Volume growth |
0.9% |
-0.4% |
-1.2% |
1.4% |
0.0% |
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Beta |
1.30 |
Debt weighting |
|
10% |
||
Balance sheet |
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|
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Cost of equity |
10.5% |
Terminal growth rate |
|
0.0% |
||
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Valuation ratios |
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Net operating assets |
12,367 |
12,844 |
12,849 |
12,638 |
12,165 |
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Investments |
0 |
0 |
0 |
0 |
0 |
|
Jun-YE |
2017 |
2018 |
|
2019E |
2020E |
2021E |
Equity |
9,720 |
9,719 |
10,326 |
10,738 |
10,759 |
|
P/E multiple |
6.1x |
13.8x |
|
8.9x |
7.8x |
12.2x |
Minority interest |
14 |
13 |
13 |
13 |
13 |
|
Dividend yield |
8.2% |
4.6% |
|
6.4% |
9.2% |
6.9% |
Net debt |
2,633 |
3,112 |
2,510 |
1,887 |
1,393 |
|
EV/EBITDA |
3.3x |
4.8x |
|
4.3x |
3.5x |
4.0x |
Balance sheet ratios |
|
|
|
|
|
|
P/B |
1.3x |
1.2x |
|
1.2x |
1.2x |
1.2x |
|
|
|
|
|
|
NAV per share, $ |
3.1 |
3.1 |
|
3.4 |
3.6 |
3.6 |
|
Gearing* |
21.3% |
24.3% |
19.6% |
14.9% |
11.5% |
|
|
|
|
|
|
|
|
Net debt to EBITDA |
0.6x |
1.0x |
0.7x |
0.5x |
0.4x |
|
|
|
|
|
|
|
|
RoCE |
21.1% |
11.7% |
14.3% |
15.8% |
10.7% |
|
|
|
|
|
|
|
|
RoIC (after tax) |
19.1% |
3.1% |
11.8% |
10.6% |
6.4% |
|
|
|
|
|
|
|
|
RoE |
23.1% |
9.0% |
14.6% |
15.5% |
9.7% |
|
|
|
|
|
|
|
|
*Gearing is defined as net debt/(net debt +equity)
**Working capital days is defined as (working capital/revenue)*365
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
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