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Kumba Iron Ore – SELL
Renaissance Capital
6 February 2019
Metals & Mining
Figure 85: Kumba Iron Ore, ZARmn (unless otherwise noted) |
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Kumba Iron Ore |
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KIOJ.J |
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Target Price, ZAR: |
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270 |
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Market capitalisation, ZARmn: |
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110,204 |
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Last Price, ZAR: |
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341 |
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Enterprise value, ZARmn: |
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135,051 |
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Potential 12-month return: |
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-8.4% |
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Dec-YE |
2016 |
2017 |
2018E |
2019E |
2020E |
Dec-YE |
2016 |
2017 |
2018E |
2019E |
2020E |
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Income statement |
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Cash flow statement |
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Revenue |
40,767 |
46,379 |
45,898 |
52,796 |
46,102 |
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Operating cash flow |
12,664 |
18,074 |
15,400 |
21,731 |
14,542 |
Underlying EBITDA |
18,557 |
19,691 |
20,383 |
25,763 |
19,008 |
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Growth capex |
-856 |
-575 |
-155 |
0 |
0 |
Underlying EBIT |
15,466 |
16,664 |
16,810 |
22,107 |
15,316 |
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Maintenance capex |
-1,664 |
-2,499 |
-3,645 |
-4,317 |
-3,775 |
Net interest |
-201 |
298 |
481 |
677 |
566 |
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Other |
454 |
-655 |
264 |
0 |
0 |
Taxation |
-3,934 |
-5,481 |
-4,397 |
-6,038 |
-4,209 |
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FCF |
10,598 |
14,345 |
11,864 |
17,414 |
10,767 |
Minority interest in profit |
-2,523 |
-3,798 |
-3,143 |
-4,354 |
-3,035 |
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Equity shareholders' cash |
10,769 |
12,853 |
9,168 |
12,865 |
7,632 |
Attributable profit |
8,621 |
12,335 |
9,641 |
12,392 |
8,638 |
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Dividends and share buy backs |
0 |
-5,144 |
-9,504 |
-14,333 |
-10,081 |
Headline earnings |
8,724 |
9,728 |
9,675 |
12,392 |
8,638 |
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Movement in net debt |
10,769 |
7,709 |
-336 |
-1,468 |
-2,449 |
HEPS, ZAR |
27.30 |
30.47 |
30.11 |
38.47 |
26.82 |
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Cash flow ratios |
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Thomson Reuters consensus, ZAR |
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29.06 |
28.93 |
24.66 |
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Working capital days |
81 |
37 |
51 |
40 |
45 |
DPS declared, ZAR |
0.00 |
30.97 |
37.41 |
38.40 |
26.80 |
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Cash conversion |
1.2x |
1.3x |
0.9x |
1.0x |
0.9x |
Income statement ratios |
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FCF yield |
28.6% |
21.7% |
10.1% |
12.8% |
7.8% |
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Equity shareholders' yield |
31.2% |
18.5% |
9.4% |
11.7% |
7.0% |
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EBITDA margin |
46% |
42% |
44% |
49% |
41% |
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Capex/EBITDA |
13.6% |
15.6% |
18.6% |
16.8% |
19.9% |
EBIT margin |
38% |
36% |
37% |
42% |
33% |
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Valuation |
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HEPS growth |
131% |
12% |
-1% |
28% |
-30% |
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ZAR |
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Dividend payout ratio |
0% |
80% |
125% |
100% |
100% |
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Calculation of target price |
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Input assumptions |
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DCF fair value |
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277 |
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Plus: equity shareholders' cash/share |
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38 |
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Iron ore - (62.5%, CIF China), $/t |
58 |
71 |
66 |
75 |
67 |
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Less: DPS paid |
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-43 |
Lump premium, $/t |
10 |
15 |
20 |
17 |
13 |
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TP, rounded to |
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270 |
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Kumba average export realisations, $/t |
61 |
71 |
72 |
75 |
66 |
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Share price on 1/2/2019 |
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341 |
Mining & beneficiation cash cost, ZAR/t |
258 |
307 |
276 |
260 |
271 |
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Expected share price return |
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-20.7% |
Freight charges - S. Africa to China, $/t |
6.8 |
11.2 |
13.8 |
14.4 |
13.7 |
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Plus: expected dividend yield |
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12.3% |
ZAR/$ |
14.7 |
13.3 |
13.2 |
14.3 |
14.1 |
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Total implied one-year return |
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-8.4% |
Required breakeven price, $/t |
28.8 |
39.6 |
35.0 |
37.5 |
40.3 |
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Sales volumes, kt |
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Export iron ore |
39,061 |
41,615 |
39,966 |
40,625 |
40,750 |
Domestic iron ore |
3,423 |
3,277 |
3,291 |
3,750 |
3,750 |
Total sales |
42,484 |
44,892 |
43,257 |
44,375 |
44,500 |
Attributable Cu eq volumes, kt |
350 |
370 |
356 |
365 |
366 |
Volume growth |
-11.0% |
5.8% |
-3.7% |
2.4% |
0.3% |
Balance sheet |
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Net operating assets |
29,728 |
30,834 |
31,770 |
30,614 |
31,113 |
Investments |
643 |
838 |
840 |
840 |
840 |
Equity |
27,850 |
34,769 |
35,270 |
33,329 |
31,886 |
Minority interest |
8,686 |
10,777 |
10,878 |
10,196 |
9,689 |
Net debt |
-6,165 |
-13,874 |
-13,538 |
-12,070 |
-9,621 |
Balance sheet ratios |
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Gearing* |
-28.4% |
-66.4% |
-62.3% |
-56.8% |
-43.2% |
Net debt to EBITDA |
-0.3x |
-0.7x |
-0.7x |
-0.5x |
-0.5x |
RoCE |
16.6% |
17.0% |
16.7% |
21.6% |
14.6% |
RoIC (after tax) |
12.0% |
10.9% |
13.5% |
17.0% |
10.3% |
RoE |
36.6% |
39.4% |
27.5% |
36.1% |
26.5% |
RoE at replacement cost |
11.4% |
13.4% |
9.8% |
12.5% |
8.9% |
Share price range, ZAR: |
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12-month high on 15/2/2018 |
368 |
12-month low on 30/11/2018 |
244 |
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Price move since high |
-7.4% |
Price move since low |
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39.5% |
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Calculation of discount rate |
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WACC |
12.5% |
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 |
3.0% |
After-tax cost of debt |
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7.2% |
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Beta |
1.15 |
Debt weighting |
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0% |
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Cost of equity |
12.5% |
Terminal growth rate |
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0.0% |
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Valuation ratios |
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Dec-YE |
2016 |
2017 |
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2018E |
2019E |
2020E |
P/E multiple |
3.9x |
7.1x |
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10.0x |
8.9x |
12.7x |
Dividend yield |
0.0% |
14.4% |
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12.4% |
11.3% |
7.9% |
EV/EBITDA |
2.2x |
4.1x |
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5.8x |
5.3x |
7.3x |
P/B |
1.2x |
2.0x |
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2.8x |
3.3x |
3.4x |
NAV per share, ZAR |
86.5 |
107.9 |
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109.5 |
103.5 |
99.0 |
* Gearing defined as net debt/(net debt +equity)
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
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