- •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
Kumba Iron Ore – SELL
Renaissance Capital
1 April 2019
Metals & Mining
Figure 118: Kumba Iron Ore, ZARmn (unless otherwise noted)
|
|
|
|
Kumba Iron Ore |
KIOJ.J |
Target price, ZAR: |
330 |
Market capitalisation, ZARmn: |
131,468 |
Last price, ZAR: |
405 |
Enterprise value, ZARmn: |
165,990 |
Potential 12-month return: |
-5.2% |
Dec-YE |
2017 |
2018 |
2019E |
2020E |
2021E |
Income statement |
|
|
|
|
|
Revenue |
46,379 |
45,725 |
65,955 |
62,146 |
56,829 |
Underlying EBITDA |
19,691 |
20,733 |
36,912 |
30,177 |
26,138 |
Underlying EBIT |
16,664 |
16,464 |
33,002 |
26,202 |
22,073 |
Net interest |
298 |
320 |
756 |
953 |
785 |
Taxation |
-5,481 |
-4,026 |
-8,946 |
-7,196 |
-6,057 |
Minority interest in profit |
-3,798 |
-2,980 |
-6,451 |
-5,189 |
-4,368 |
Attributable profit |
12,335 |
9,615 |
18,361 |
14,769 |
12,432 |
Headline earnings |
9,728 |
9,677 |
18,361 |
14,769 |
12,432 |
HEPS, ZAR |
30.47 |
30.28 |
57.01 |
45.86 |
38.60 |
Thomson Reuters consensus, ZAR |
|
|
40.71 |
28.37 |
24.93 |
DPS declared, ZAR |
30.97 |
30.24 |
57.00 |
45.80 |
38.60 |
Income statement ratios |
|
|
|
|
|
EBITDA margin |
42% |
45% |
56% |
49% |
46% |
EBIT margin |
36% |
36% |
50% |
42% |
39% |
HEPS growth |
12% |
-1% |
88% |
-20% |
-16% |
Dividend payout ratio |
80% |
101% |
100% |
100% |
100% |
Input assumptions |
|
|
|
|
|
Iron ore - (62.5%, CIF China), $/t |
71 |
66 |
88 |
85 |
78 |
Lump premium, $/t |
15 |
20 |
21 |
15 |
14 |
Kumba average export realisations, $/t |
71 |
72 |
99 |
87 |
81 |
Kumba average product premium, $/t |
11 |
20 |
22 |
18 |
17 |
Mining & beneficiation cash cost, ZAR/t |
307 |
272 |
300 |
315 |
312 |
Freight charges - S. Africa to China, $/t |
11.2 |
13.8 |
11.4 |
15.9 |
13.8 |
ZAR/$ |
13.3 |
13.2 |
14.3 |
14.4 |
14.5 |
Required breakeven price, $/t |
39.6 |
34.9 |
32.4 |
41.4 |
39.2 |
Sales volumes, kt |
|
|
|
|
|
Export iron ore |
41,615 |
39,966 |
40,950 |
41,800 |
40,750 |
Domestic iron ore |
3,277 |
3,291 |
3,000 |
3,000 |
3,750 |
Total sales |
44,892 |
43,257 |
43,950 |
44,800 |
44,500 |
Attributable Cu eq volumes, kt |
365 |
351 |
357 |
364 |
361 |
Volume growth |
5.8% |
-3.7% |
1.8% |
2.0% |
-1.0% |
Balance sheet |
|
|
|
|
|
Net operating assets |
30,834 |
33,959 |
31,287 |
32,144 |
32,526 |
Investments |
838 |
558 |
558 |
558 |
558 |
Equity |
34,769 |
35,260 |
39,600 |
37,138 |
36,043 |
Minority interest |
10,777 |
10,927 |
12,452 |
11,587 |
11,202 |
Net debt |
-13,874 |
-11,670 |
-20,208 |
-16,023 |
-14,161 |
Balance sheet ratios |
|
|
|
|
|
Gearing* |
-66.4% |
-49.5% |
-104.2% |
-75.9% |
-64.7% |
Net debt to EBITDA |
-0.7x |
-0.6x |
-0.5x |
-0.5x |
-0.5x |
RoCE |
17.0% |
16.4% |
32.2% |
24.8% |
20.3% |
RoIC (after tax) |
10.9% |
12.7% |
26.1% |
18.2% |
14.8% |
RoE |
39.4% |
27.5% |
49.1% |
38.5% |
34.0% |
RoE at replacement cost |
13.4% |
9.9% |
17.7% |
13.4% |
11.6% |
Dec-YE |
|
|
|
2019E |
2020E |
2021E |
2017 |
2018 |
|
||||
Cash flow statement |
|
|
|
|
|
|
Operating cash flow |
18,074 |
14,376 |
|
31,640 |
23,108 |
20,723 |
Growth capex |
-575 |
-506 |
|
0 |
-500 |
-1,000 |
Maintenance capex |
-2,499 |
-3,957 |
|
-4,700 |
-4,192 |
-3,870 |
Other |
-655 |
-12 |
|
0 |
0 |
0 |
FCF |
14,345 |
9,901 |
|
26,940 |
18,416 |
15,854 |
Equity shareholders' cash |
12,853 |
7,301 |
|
22,558 |
13,047 |
11,666 |
Dividends and share buy backs |
-5,144 |
-9,505 |
|
-14,020 |
-17,232 |
-13,528 |
Movement in net debt |
7,709 |
-2,204 |
|
8,538 |
-4,184 |
-1,862 |
Cash flow ratios |
|
|
|
|
|
|
Working capital days |
37 |
59 |
|
35 |
37 |
38 |
Cash conversion |
1.3x |
0.8x |
|
1.2x |
0.9x |
0.9x |
FCF yield |
18.0% |
8.3% |
|
17.2% |
11.5% |
9.8% |
Equity shareholders' yield |
18.5% |
7.5% |
|
17.3% |
10.0% |
8.9% |
Capex/EBITDA |
15.6% |
21.5% |
|
12.7% |
15.5% |
18.6% |
Valuation |
|
|
|
|
|
|
Calculation of target price |
|
|
|
|
|
ZAR |
DCF fair value |
|
|
|
|
|
315 |
Plus: equity shareholders' cash/share |
|
|
|
|
|
63 |
Less: DPS paid |
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|
|
|
|
-46 |
TP, rounded to |
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|
|
|
|
330 |
Share price on 26/3/2019 |
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|
|
|
|
405 |
Expected share price return |
|
|
|
|
|
-18.6% |
Plus: expected dividend yield |
|
|
|
|
|
13.4% |
Total implied one-year return |
|
|
|
|
|
-5.2% |
Share price range, ZAR: |
|
|
|
|
|
|
12-month high on 26/3/2019 |
405 |
12-month low on 30/11/2018 |
244 |
|||
Price move since high |
0.0% Price move since low |
|
66.1% |
|||
Calculation of discount rate |
|
|
|
|
|
|
WACC |
14.2% |
Cost of debt |
|
|
10.0% |
|
Risk-free rate |
9.0% |
Tax rate |
|
|
28% |
|
Equity risk premium |
4.0% |
After-tax cost of debt |
|
7.2% |
||
Beta |
1.30 |
Debt weighting |
|
0% |
||
Cost of equity |
14.2% |
Terminal growth rate |
|
3.0% |
||
Valuation ratios |
|
|
|
|
|
|
Dec-YE |
2017 |
2018 |
|
2019E |
2020E |
2021E |
P/E multiple |
7.1x |
10.0x |
|
7.1x |
8.8x |
10.5x |
Dividend yield |
14.4% |
10.0% |
|
14.1% |
11.3% |
9.5% |
EV/EBITDA |
4.1x |
5.8x |
|
4.2x |
5.3x |
6.2x |
P/B |
2.0x |
2.8x |
|
3.3x |
3.5x |
3.6x |
NAV per share, ZAR |
107.9 |
109.5 |
|
123.0 |
115.3 |
111.9 |
* Gearing defined as net debt/(net debt +equity)
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
72