- •Contents
- •Revisions to our forecasts, TPs and ratings
- •Investment stance
- •Capital cycle favours rising returns
- •Comfortable balance sheets and supportive dividend potential
- •Value relative to other stocks
- •Yield potential through the cycle
- •Mid-cycle cash generation offers supportive yields
- •Where to hide if you are bearish
- •What to buy if you are bullish
- •Limited lives weighing down IRR
- •Yields should compensate for limited lives
- •Positive earnings momentum continues to support share prices
- •Commodity price revisions
- •Commodity section
- •Commodity section
- •Preference for base metals over steelmaking materials
- •Earnings revisions
- •Risks and catalysts
- •Peer comp charts
- •Commodity price and exchange rate forecasts
- •Important publications
- •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
- •Sasol
- •Disclosures appendix
vk.com/id446425943
Assore – HOLD
Renaissance Capital
1 April 2019
Metals & Mining
Figure 113: Assore, ZARmn (unless otherwise noted)
|
|
|
|
Assore |
ASRJ.J |
Target price, ZAR: |
350 |
Market capitalisation, ZARmn: |
50,770 |
Last price, ZAR: |
361 |
Enterprise value, ZARmn: |
44,004 |
Potential 12-month return: |
7.0% |
Jun-YE |
2017 |
2018 |
2019E |
2020E |
2021E |
Income statement |
|
|
|
|
|
Revenue |
5,945 |
6,306 |
6,135 |
6,365 |
6,597 |
Underlying EBITDA |
2,250 |
1,840 |
1,938 |
2,117 |
2,107 |
Underlying EBIT |
2,120 |
1,683 |
1,789 |
1,940 |
1,915 |
Investment and other income |
372 |
649 |
691 |
833 |
1,053 |
Interest paid |
-20 |
-19 |
-43 |
-2 |
0 |
Taxation |
-583 |
-646 |
-696 |
-776 |
-831 |
Equity income |
3,249 |
3,508 |
5,068 |
4,848 |
3,663 |
Minority interest in profit |
-117 |
-56 |
-16 |
0 |
0 |
Net profit for the year |
5,021 |
5,119 |
6,791 |
6,843 |
5,801 |
Headline earnings |
5,209 |
5,109 |
6,793 |
6,843 |
5,801 |
HEPS, ZAc |
5,410 |
4,953 |
6,585 |
6,634 |
5,624 |
Thomson Reuters consensus EPS, ZAc |
4,478 |
4,205 |
6,036 |
4,863 |
4,141 |
EPS incl estimated BEE dilution, ZAc |
5,522 |
5,569 |
4,721 |
||
DPS declared, ZAc |
1,400 |
2,200 |
2,940 |
3,930 |
3,740 |
Underlying EBIT |
1,200 |
704 |
573 |
698 |
745 |
Other mining and trading business |
|||||
EBIT margin |
20% |
11% |
9% |
11% |
11% |
Commissions on sales and technical fees |
920 |
979 |
1,216 |
1,242 |
1,170 |
Total consolidated |
2,120 |
1,683 |
1,789 |
1,940 |
1,915 |
Equity accounted: Assmang |
2,881 |
2,115 |
4,474 |
4,967 |
3,437 |
Iron ore |
|||||
EBIT margin |
36% |
29% |
44% |
45% |
36% |
Manganese |
1,681 |
2,553 |
2,443 |
1,838 |
1,737 |
EBIT margin |
33% |
40% |
34% |
27% |
25% |
Chrome |
-5 |
-29 |
-5 |
0 |
0 |
Underlying EBIT* |
6,677 |
6,322 |
8,700 |
8,745 |
7,089 |
Income statement ratios |
|
|
|
|
|
EBITDA margin * |
41% |
37% |
42% |
42% |
36% |
EBIT margin * |
35% |
31% |
37% |
36% |
30% |
HEPS growth |
220% |
-8% |
33% |
1% |
-15% |
Dividend payout ratio |
38% |
60% |
60% |
80% |
90% |
Input assumptions |
|
|
|
|
|
Iron ore spot (CIF China), $/t |
69 |
67 |
75 |
88 |
83 |
Manganese ore (44%, CIF China), $/mtu |
5.72 |
6.79 |
6.45 |
5.24 |
5.41 |
Ferro Manganese - CIF, $/t |
1,166 |
1,341 |
1,147 |
1,100 |
1,135 |
Chrome ore, $/t |
278 |
207 |
184 |
192 |
202 |
ZAR/$ |
13.60 |
12.85 |
14.18 |
14.40 |
14.41 |
Required breakeven price |
|
|
|
|
|
Iron ore, $/t |
42 |
42 |
32 |
47 |
50 |
Manganese ore, $/mtu |
4.37 |
5.21 |
4.87 |
4.43 |
4.60 |
Chrome ore, $/t |
209 |
151 |
154 |
157 |
165 |
Assmang sales volumes (100%) |
17.3 |
17.9 |
17.5 |
17.4 |
17.4 |
Iron ore, mnt |
|||||
Manganese ore, mnt |
3.0 |
3.2 |
3.3 |
3.5 |
3.7 |
Manganese alloys, kt |
303 |
378 |
384 |
440 |
440 |
Chrome ore, kt |
1,279 |
1,557 |
1,507 |
1,500 |
1,500 |
Attributable Cu eq volumes, kt |
204 |
214 |
210 |
219 |
222 |
Volume growth |
5.7% |
4.5% |
-1.4% |
4.0% |
1.5% |
Contribution to FY19E attributable underlying EBITDA
Other mining, trading and
shipping activities
20% Iron ore
52%
Manganese
28%
Jun-YE |
|
|
|
2019E |
2020E |
2021E |
2017 |
2018 |
|
||||
Balance sheet |
|
|
|
|
|
|
Net operating assets |
17,547 |
17,915 |
|
20,148 |
20,320 |
20,404 |
Investments |
253 |
270 |
|
208 |
208 |
208 |
Equity |
22,872 |
26,091 |
|
30,324 |
31,473 |
32,131 |
Minority interest |
-24 |
-41 |
|
-62 |
-62 |
-62 |
Net (cash) debt |
-5,047 |
-7,865 |
|
-9,906 |
-10,883 |
-11,457 |
Balance sheet ratios |
|
|
|
|
|
|
Gearing* |
-28.3% |
-43.2% |
|
-48.5% |
-52.9% |
-55.4% |
Net debt to EBITDA plus equity income |
-0.9x |
-1.5x |
|
-1.4x |
-1.6x |
-2.0x |
RoCE |
39.5% |
35.0% |
|
44.8% |
42.3% |
34.0% |
RoIC (after tax) |
30.8% |
27.3% |
|
34.9% |
33.0% |
26.5% |
RoE (ex. cash) |
28.6% |
25.6% |
|
32.1% |
29.4% |
23.0% |
*net debt/(net debt+equity) |
|
|
|
|
|
|
Cash flow statement |
|
|
|
|
|
|
Operating cash flow |
4,917 |
4,739 |
|
4,522 |
6,437 |
5,334 |
Capex |
-127 |
-367 |
|
-453 |
-364 |
-375 |
Other cash flows |
-1,435 |
-19 |
|
40 |
0 |
0 |
FCF |
3,356 |
4,354 |
|
4,109 |
6,072 |
4,959 |
Equity shareholders' cash |
3,473 |
4,718 |
|
4,599 |
6,671 |
5,717 |
Dividends and share buy-backs |
-1,095 |
-1,900 |
|
-2,559 |
-5,694 |
-5,143 |
Movement in net debt |
2,378 |
2,818 |
|
2,040 |
977 |
575 |
Cash flow ratios |
|
|
|
|
|
|
Working capital days |
30 |
12 |
|
21 |
21 |
17 |
Capex/EBITDA * |
19.8% |
25.6% |
|
23.2% |
20.2% |
21.4% |
FCF yield |
20.2% |
19.4% |
|
14.4% |
22.0% |
18.3% |
Equity shareholders' yield |
16.0% |
15.5% |
|
11.9% |
17.3% |
14.8% |
Cash conversion |
0.7x |
0.9x |
|
0.7x |
1.0x |
1.0x |
Valuation |
|
|
|
|
|
|
SoTP DCF fair value |
|
|
|
|
ZARmn |
ZAR/sh |
Assmang |
|
|
|
|
24,221 |
173 |
Marketing fee |
|
|
|
|
6,229 |
45 |
Other mining and trading |
|
|
|
|
2,756 |
20 |
Other |
|
|
|
|
39 |
0 |
Enterprise value |
|
|
|
|
33,245 |
238 |
Other Investments |
|
|
|
|
270 |
2 |
Net cash (debt) as at 30 June 2018 |
|
|
|
|
7,865 |
56 |
Dividends retained against BEE vendor loans |
|
|
|
3,500 |
25 |
|
DCF fair value for equity |
|
|
|
|
44,880 |
321 |
Plus: equity shareholders' cash/share |
|
|
|
|
|
60 |
Less: DPS |
|
|
|
|
|
-36 |
Rounded to |
|
|
|
|
|
350 |
Share price on 26/3/2019 |
|
|
|
|
|
361 |
Expected share price return |
|
|
|
|
|
-3.1% |
Plus: expected dividend yield |
|
|
|
|
|
10.1% |
Total implied one-year return |
|
|
|
|
|
7.0% |
Share price range, ZAR: |
|
|
|
|
|
|
12-month high on 25/9/2018 |
381 |
12-month low on 20/7/2018 |
252 |
|||
Price move since high |
-1.9% |
Price move since low |
|
48.1% |
||
Calculation of discount rate |
|
|
|
|
|
|
WACC |
15.1% |
Cost of debt |
|
|
9.5% |
|
Risk-free rate |
9.0% |
Tax rate |
|
|
28% |
|
Equity risk premium |
5.0% |
After-tax cost of debt |
|
6.8% |
||
Beta |
1.30 |
Debt weighting |
|
5.0% |
||
Cost of equity |
15.5% |
Terminal growth rate |
|
4.0% |
||
Valuation ratios |
|
|
|
|
|
|
Jun-YE |
2017 |
2018 |
|
2019E |
2020E |
2021E |
P/E multiple |
4.7x |
7.0x |
|
6.8x |
6.7x |
7.9x |
Dividend yield |
6.7% |
7.5% |
|
7.9% |
10.5% |
10.0% |
Average enterprise value, ZARmn |
24,246 |
33,217 |
|
42,245 |
41,268 |
40,694 |
EV/(EBITDA + equity income) |
4.4x |
6.2x |
|
6.0x |
5.9x |
7.1x |
P/B |
1.3x |
1.6x |
|
1.7x |
1.7x |
1.6x |
NAV per share, ZAR |
164 |
187 |
|
217 |
225 |
230 |
Net cash (debt) per share, ZAR |
36 |
56 |
|
71 |
78 |
82 |
* Proportionately consolidated
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
67
vk.com/id446425943
BHP – HOLD
Renaissance Capital
1 April 2019
Metals & Mining
Figure 114: BHP, $mn (unless otherwise noted) |
|
|
|
BHP |
BILJ.J |
Target price, ZAR: |
340 |
Market capitalisation, $mn: |
122,607 |
Share price, ZAR: |
340 |
Enterprise value, $mn: |
146,463 |
Potential 12-month return: |
9.1% |
Jun-YE |
2017 |
2018 |
2019E |
2020E |
2021E |
Income statement |
|
|
|
|
|
Revenue |
38,285 |
43,650 |
45,289 |
48,643 |
47,705 |
Underlying EBITDA |
20,296 |
23,183 |
24,740 |
26,976 |
25,097 |
Underlying EBIT |
12,283 |
16,429 |
18,158 |
20,153 |
18,219 |
Net interest |
-1,431 |
-1,245 |
-1,060 |
-973 |
-948 |
Taxation |
-4,100 |
-7,007 |
-5,697 |
-6,384 |
-5,796 |
Minority interest in profit |
-332 |
-1,118 |
-936 |
-1,078 |
-1,139 |
Attributable profit |
5,890 |
3,705 |
10,082 |
11,718 |
10,336 |
Underlying attributable profit |
6,732 |
8,933 |
10,050 |
11,718 |
10,336 |
Underlying EPS, USc |
127 |
168 |
195 |
232 |
205 |
Thomson Reuters consensus EPS, USc |
|
|
197 |
196 |
171 |
DPS declared, USc |
83 |
118 |
257 |
209 |
205 |
Underlying EBIT |
-777 |
0 |
0 |
0 |
0 |
Petroleum - US onshore |
|||||
EBIT margin |
-36% |
0% |
- |
- |
- |
Petroleum - Conventional |
1,349 |
1,549 |
2,162 |
1,587 |
1,512 |
EBIT margin |
29% |
35% |
38% |
31% |
30% |
Copper |
1,985 |
4,330 |
2,759 |
3,871 |
4,273 |
EBIT margin |
27% |
37% |
27% |
32% |
33% |
Iron ore |
7,174 |
7,194 |
9,462 |
12,089 |
10,335 |
EBIT margin |
49% |
49% |
55% |
60% |
55% |
Coal |
3,050 |
3,683 |
4,001 |
2,848 |
2,341 |
EBIT margin |
40% |
41% |
42% |
34% |
28% |
Other |
-498 |
-327 |
-225 |
-242 |
-243 |
Underlying EBIT |
12,283 |
16,429 |
18,158 |
20,153 |
18,219 |
Income statement ratios |
|
|
|
|
|
EBITDA margin |
55% |
55% |
56% |
57% |
55% |
EBIT margin |
32% |
38% |
40% |
41% |
38% |
EPS growth |
455% |
33% |
16% |
19% |
-12% |
Dividend payout ratio |
66% |
70% |
132% |
90% |
100% |
Input assumptions |
|
|
|
|
|
Brent crude oil, $/bbl |
51 |
64 |
68 |
63 |
61 |
Iron ore fines (62%Fe, CIF China), $/t |
69 |
67 |
75 |
88 |
83 |
Copper, USc/lb |
245 |
306 |
282 |
295 |
306 |
Hard coking coal, $/t |
190 |
200 |
204 |
170 |
167 |
$/AUD |
0.75 |
0.78 |
0.72 |
0.76 |
0.80 |
Oil breakeven price - conventional, $/boe |
29 |
33 |
35 |
40 |
44 |
Copper breakeven price, $/t |
3,752 |
4,001 |
3,943 |
3,914 |
3,974 |
Iron ore breakeven price, $/t |
34 |
34 |
37 |
44 |
44 |
Coking coal breakeven price, $/t |
81 |
92 |
91 |
95 |
104 |
Sales volumes (BHP's share) |
|
|
|
|
|
Petroleum products, MMboe* |
209 |
193 |
120 |
116 |
116 |
Iron ore, mnt |
231 |
237 |
244 |
251 |
251 |
Iron ore - WAIO (100% basis), mnt |
268 |
275 |
279 |
290 |
290 |
Copper - Escondida (100% basis), kt |
767 |
1,209 |
1,146 |
1,200 |
1,200 |
Other copper, kt |
550 |
543 |
531 |
600 |
644 |
Metallurgical coal, mnt |
38 |
41 |
44 |
45 |
45 |
Export thermal coal, mnt |
28 |
28 |
28 |
29 |
29 |
Attributable Cu eq volumes, kt |
5,878 |
6,191 |
5,877 |
6,066 |
6,128 |
Volume growth |
-6.8% |
5.3% |
-5.1% |
3.2% |
1.0% |
Contribution to FY19E underlying EBITDA
|
Conventional |
Coal |
petroleum |
19% |
16% |
|
Copper |
|
20% |
Iron ore |
|
45% |
|
Jun-YE |
|
|
|
2019E |
2020E |
2021E |
2017 |
2018 |
|
||||
Balance sheet |
|
|
|
|
|
|
Net operating assets |
79,194 |
71,636 |
|
62,131 |
63,271 |
64,265 |
Investments |
-147 |
-32 |
|
39 |
39 |
39 |
Equity |
57,258 |
55,592 |
|
48,965 |
49,980 |
50,190 |
Minority interest |
5,468 |
5,078 |
|
4,778 |
4,994 |
5,222 |
Net debt |
16,321 |
10,934 |
|
8,426 |
8,336 |
8,892 |
Balance sheet ratios |
|
|
|
|
|
|
Gearing* |
22.2% |
16.4% |
|
14.7% |
14.3% |
15.1% |
Net debt to EBITDA |
0.8x |
0.5x |
|
0.3x |
0.3x |
0.4x |
RoCE |
13.5% |
19.4% |
|
23.6% |
27.6% |
24.4% |
RoIC |
10.8% |
14.4% |
|
15.8% |
18.3% |
16.4% |
RoE |
12.1% |
15.8% |
|
19.2% |
23.7% |
20.6% |
Cash flow statement |
|
|
|
|
|
|
Operating cash flow |
17,837 |
19,610 |
|
18,696 |
20,034 |
19,081 |
Capex (net of disposals) |
-4,252 |
-4,979 |
|
-8,000 |
-8,000 |
-8,252 |
Other |
-841 |
1,159 |
|
10,296 |
0 |
0 |
FCF |
12,744 |
15,790 |
|
20,992 |
12,034 |
10,829 |
Equity shareholders' cash |
12,659 |
10,607 |
|
19,139 |
10,793 |
9,569 |
Dividends and share buy backs |
-2,878 |
-5,220 |
|
-16,631 |
-10,703 |
-10,126 |
Excess cash |
9,781 |
5,387 |
|
2,508 |
91 |
-557 |
Cash flow ratios |
|
|
|
|
|
|
Working capital days** |
28 |
20 |
|
20 |
20 |
20 |
Capex/EBITDA |
21% |
21% |
|
32% |
30% |
33% |
FCF yield |
12.3% |
13.0% |
|
15.8% |
9.1% |
8.1% |
Equity shareholders' yield |
15.5% |
10.0% |
|
16.0% |
9.0% |
8.0% |
Cash conversion |
1.9x |
1.2x |
|
1.9x |
0.9x |
0.9x |
Valuation |
|
|
|
|
|
|
SoTP valuation and calculation of target price |
|
|
|
$mn |
ZAR/sh |
|
US onshore petroleum at estimated sales value |
|
|
|
0 |
0 |
|
Conventional petroleum |
|
|
|
|
7,641 |
21 |
Copper |
|
|
|
|
25,396 |
70 |
Iron ore |
|
|
|
|
79,802 |
221 |
Coal |
|
|
|
|
19,757 |
55 |
Other |
|
|
|
|
4,956 |
14 |
Enterprise value as at 27/3/2019 |
|
|
|
|
137,553 |
381 |
Net debt, investments and buy-backs |
|
|
|
|
-16,186 |
-45 |
Equity value as at 27/3/2019 |
|
|
|
|
121,367 |
336 |
Plus: One year forward FCF/share |
|
|
|
|
|
36 |
Less: DPS |
|
|
|
|
|
-31 |
TP, rounded to |
|
|
|
|
|
340 |
Share price on 26/3/2019 |
|
|
|
|
|
340 |
Expected share price return |
|
|
|
|
|
0.0% |
Plus: expected dividend yield |
|
|
|
|
|
9.0% |
Total implied one-year return |
|
|
|
|
|
9.1% |
Share price range, ZAR: |
|
|
|
|
|
|
12-month high |
345 |
12-month low |
|
215 |
||
Price move since high |
-1.6% |
Price move since low |
|
58.1% |
||
Calculation of discount rate |
|
|
|
|
|
|
WACC |
9.4% |
Cost of debt |
|
|
4.5% |
|
Risk-free rate |
4.0% |
Tax rate |
|
|
30% |
|
Equity risk premium |
5.0% |
After-tax cost of debt |
|
3.2% |
||
Beta |
1.30 |
Debt weighting |
|
15.0% |
||
Cost of equity |
10.5% |
Terminal growth rate |
|
3.0% |
||
Valuation ratios |
|
|
|
|
|
|
Jun-YE |
2017 |
2018 |
|
2019E |
2020E |
2021E |
P/E multiple |
12.1x |
11.8x |
|
12.1x |
10.2x |
11.5x |
Dividend yield |
5.4% |
5.9% |
|
10.9% |
8.8% |
8.7% |
EV/EBITDA |
5.1x |
5.2x |
|
5.4x |
4.9x |
5.3x |
P/B |
1.4x |
1.9x |
|
2.4x |
2.4x |
2.4x |
NAV per share, $ |
10.8 |
10.4 |
|
9.7 |
9.9 |
9.9 |
NAV per share, ZAR |
146 |
134 |
|
137 |
142 |
143 |
*Net debt/(net debt+equity)
**Working capital/revenue*365
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
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