- •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
Harmony Gold – SELL
Renaissance Capital
1 April 2019
Metals & Mining
Figure 126: Harmony Gold, ZARmn (unless otherwise noted)
|
|
|
|
Harmony |
HARJ.J |
Target price, ZAR: |
22 |
Market capitalisation, ZARmn: |
16,074 |
Share price, ZAR: |
30 |
Enterprise value, ZARmn: |
20,982 |
Potential 12-month return: |
-25.6% |
Jun-YE |
|
|
|
2017 |
2018 |
2019E |
2020E |
2021E |
Income statement |
|
|
|
|
|
|
||
Revenue |
|
|
19,264 |
20,358 |
27,113 |
27,910 |
26,450 |
|
Underlying EBITDA |
|
4,452 |
5,356 |
7,836 |
9,552 |
7,856 |
||
Underlying EBIT |
|
1,933 |
2,786 |
3,623 |
5,719 |
4,133 |
||
Other items |
|
|
-2,292 |
-6,862 |
-1,672 |
-1,378 |
-1,375 |
|
Net interest |
|
|
233 |
-669 |
-455 |
-335 |
-73 |
|
Taxation |
|
|
|
510 |
234 |
-451 |
-1,166 |
-764 |
Net profit for the year |
362 |
-4,473 |
1,069 |
2,840 |
1,920 |
|||
Headline earnings |
|
1,306 |
763 |
1,067 |
2,840 |
1,920 |
||
Headline EPS, ZAR |
|
2.98 |
1.71 |
2.01 |
5.34 |
3.61 |
||
Thomson Reuters consensus HEPS, ZAR |
|
|
1.92 |
3.72 |
3.05 |
|||
DPS declared, ZAR |
|
0.85 |
0.35 |
0.00 |
0.00 |
0.00 |
||
Production EBIT |
|
1,768 |
2,432 |
3,186 |
4,787 |
3,142 |
||
South Africa underground |
||||||||
EBIT margin |
|
|
11% |
14% |
15% |
21% |
15% |
|
South Africa Surface |
|
174 |
235 |
225 |
345 |
224 |
||
EBIT margin |
|
|
10% |
12% |
10% |
18% |
12% |
|
Hidden Valley |
|
-9 |
119 |
146 |
531 |
595 |
||
EBIT margin |
|
|
-1% |
29% |
4% |
15% |
18% |
|
Group production EBIT |
1,933 |
2,786 |
3,623 |
5,719 |
4,133 |
|||
Income statement ratios |
|
|
|
|
|
|||
EBITDA margin |
|
23% |
26% |
29% |
34% |
30% |
||
EBIT margin |
|
|
10% |
14% |
13% |
20% |
16% |
|
HEPS Growth |
|
35% |
-43% |
18% |
166% |
-32% |
||
Dividend payout ratio |
29% |
20% |
0% |
0% |
0% |
|||
Input assumptions |
|
|
|
|
|
|
||
Gold, $/oz |
|
|
1,257 |
1,298 |
1,274 |
1,367 |
1,308 |
|
$/ZAR |
|
|
|
13.60 |
12.85 |
14.18 |
14.40 |
14.41 |
Calculated breakeven price, $/oz |
|
|
|
|
|
|||
South Africa breakeven |
1,097 |
1,117 |
1,100 |
1,092 |
1,108 |
|||
International breakeven |
1,168 |
1,105 |
782 |
828 |
667 |
|||
Group breakeven |
|
1,193 |
1,208 |
1,129 |
1,125 |
1,113 |
||
Gold production volumes, koz |
|
|
|
|
|
|||
Kusasalethu |
lumes |
141 |
142 |
156 |
156 |
156 |
||
Doornkop |
lumes |
|
86 |
110 |
107 |
88 |
88 |
|
Tshepong/Phakisa |
lumes |
284 |
302 |
287 |
290 |
290 |
||
Masimong |
lumes |
|
82 |
84 |
74 |
74 |
74 |
|
Target 1 |
lumes |
|
86 |
92 |
95 |
100 |
100 |
|
Bambanani |
lumes |
|
88 |
91 |
82 |
84 |
84 |
|
Joel lumes |
|
72 |
53 |
50 |
72 |
72 |
||
Unisel |
lumes |
|
51 |
41 |
32 |
21 |
0 |
|
Moab |
lumes |
|
0 |
106 |
260 |
250 |
250 |
|
Surface |
lumes |
|
102 |
115 |
124 |
100 |
100 |
|
South Africa Total |
lumes |
993 |
1,136 |
1,266 |
1,235 |
1,214 |
||
Hidden Valley lumes |
84 |
26 |
202 |
180 |
180 |
|||
International total |
lumes |
84 |
26 |
202 |
180 |
180 |
||
Total production |
lumes |
1,076 |
1,161 |
1,467 |
1,415 |
1,394 |
||
Attributable Cu eq volumes, kt |
201 |
217 |
274 |
264 |
260 |
|||
Volume growth |
|
-0.5% |
7.9% |
26.3% |
-3.5% |
-1.5% |
||
Contribution to FY19E mining EBITDA |
|
|
|
|
|
|||
|
|
Hidden Valley |
|
Kusasalethu |
Doornkop |
|
|
|
|
|
|
7% |
|
|
|||
|
|
25% |
|
|
6% |
Tshepong/Phakisa |
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
17% |
|
Surface |
|
|
|
|
|
Masimong |
||
|
|
|
|
|
3% |
|||
6% |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bambanani |
Target 1 |
|
|
|
|
Moab |
|
Unisel |
3% |
|
|
|
|
|
|
7% |
|
|||
|
|
|
|
|
|
|||
|
|
|
24% |
|
2% |
|
|
|
Jun-YE |
|
2017 |
2018 |
|
2019E |
2020E |
2021E |
Balance sheet |
|
|
|
|
|
|
|
Net operating assets |
|
28,225 |
29,794 |
|
30,797 |
31,063 |
30,649 |
Investments, net of rehab provision |
|
1,953 |
496 |
|
81 |
81 |
81 |
Equity |
|
29,291 |
25,382 |
|
26,788 |
29,844 |
31,981 |
Minority interest |
|
0 |
0 |
|
0 |
0 |
0 |
Net debt |
|
887 |
4,908 |
|
4,090 |
1,300 |
-1,251 |
Balance sheet ratios |
|
|
|
|
|
|
|
Gearing (net debt/(net debt+equity)) |
|
2.9% |
16.2% |
|
13.2% |
4.2% |
-4.1% |
Net debt to EBITDA |
|
0.2x |
0.9x |
|
0.5x |
0.1x |
-0.2x |
RoCE |
|
6.3% |
8.9% |
|
11.2% |
17.2% |
12.4% |
RoIC (after tax) |
|
8.8% |
7.3% |
|
9.6% |
14.0% |
10.3% |
RoE |
|
4.5% |
2.8% |
|
4.1% |
10.0% |
6.2% |
Cash flow statement |
|
|
|
|
|
|
|
Operating cash flow |
|
5,224 |
4,811 |
|
7,281 |
8,463 |
7,236 |
Capex (net of disposals) |
|
-3,887 |
-4,571 |
|
-4,968 |
-4,270 |
-3,474 |
Other cash flows |
|
317 |
-5,930 |
|
-1,794 |
-1,162 |
-1,158 |
Free cash flow |
|
1,654 |
-5,690 |
|
520 |
3,031 |
2,604 |
Equity shareholders' cash |
|
635 |
-4,714 |
|
607 |
2,790 |
2,551 |
Dividends and share buy-backs |
|
-439 |
693 |
|
211 |
0 |
0 |
Surplus (deficit) cash |
|
196 |
-4,021 |
|
818 |
2,790 |
2,551 |
Cash flow ratios |
|
3 |
4 |
|
4 |
4 |
3 |
Working capital turnover, days |
|
|
|||||
FCF yield |
|
9.3% |
-34.1% |
|
2.6% |
17.8% |
18.0% |
Equity shareholders' yield |
|
3.7% |
-40.0% |
|
3.9% |
17.7% |
16.2% |
Capex/EBITDA |
|
87.3% |
85.3% |
|
63.4% |
44.7% |
44.2% |
Cash conversion |
|
0.5x |
-6.2x |
|
0.6x |
1.0x |
1.3x |
Valuation |
|
|
|
|
|
|
|
SoTP DCF fair value and calculation of target price |
|
|
|
ZARmn |
ZAR/sh |
||
Kusasalethu |
|
|
|
|
627 |
1.2 |
|
Doornkop |
|
|
|
|
737 |
1.4 |
|
Tshepong/Phakisa |
|
|
|
|
5,289 |
9.9 |
|
Masimong |
|
|
|
|
373 |
0.7 |
|
Target 1 |
|
|
|
|
262 |
0.5 |
|
Bambanani |
|
|
|
|
1,574 |
3.0 |
|
Joel |
|
|
|
|
509 |
1.0 |
|
Unisel |
|
|
|
|
141 |
0.3 |
|
Moab |
|
|
|
|
5,268 |
9.9 |
|
Surface |
|
|
|
|
2,678 |
5.0 |
|
Hidden Valley |
|
|
|
|
3,506 |
6.6 |
|
Other |
|
|
|
|
-7,633 |
-14.3 |
|
Operating value |
|
|
|
|
13,329 |
25.0 |
|
Financial instruments and rehab provision as at 30 June 2018 |
|
496 |
0.9 |
||||
Enterprise value |
|
|
|
|
13,825 |
26.0 |
|
Net debt as at 30 June 2018 |
|
|
|
|
-4,908 |
-9.2 |
|
Minority interest |
|
|
|
|
0 |
0.0 |
|
50% Golpu value assuming it trades at avg. replacement cost |
|
2,844 |
5.3 |
||||
Cash used in share buy-backs during 2019E |
|
|
|
|
211 |
0.4 |
|
Equity value |
|
|
|
|
11,972 |
22.5 |
|
Rounded to |
|
|
|
|
|
22.0 |
|
Share price on 26/3/2019 |
|
|
|
|
|
29.6 |
|
Expected share price return |
|
|
|
|
|
-25.6% |
|
Plus: expected dividend yield |
|
|
|
|
|
0.0% |
|
Total implied one-year return |
|
|
|
|
|
-25.6% |
|
Share price range, ZAR: |
|
|
|
|
|
|
|
12-month high on 21-2-2019 |
32 |
12-month low on 6-6-2018 |
19 |
||||
Price move since high |
-6.2% |
Price move since low |
|
52.4% |
|||
Calculation of WACC |
|
|
|
|
|
|
|
WACC |
13.0% |
Cost of debt |
|
|
10.0% |
||
Risk-free rate |
9.0% |
Tax rate |
|
|
28% |
||
Equity risk premium |
5.0% |
After-tax cost of debt |
|
1.1% |
|||
Beta |
1.00 |
Debt weighting |
|
15% |
|||
Cost of equity |
14.0% |
Terminal growth rate |
|
6.0% |
|||
Valuation ratios |
|
|
|
|
|
|
|
Dec-YE, $mn |
|
2017 |
2018 |
|
2019E |
2020E |
2021E |
P/E multiple |
|
12.9x |
13.8x |
|
14.7x |
5.5x |
8.2x |
Dividend yield |
|
2.2% |
1.5% |
|
0.0% |
0.0% |
0.0% |
EV/EBITDA |
|
4.0x |
3.1x |
|
2.5x |
1.8x |
1.8x |
P/B |
|
0.6x |
0.5x |
|
0.6x |
0.5x |
0.5x |
NAV per share, ZAR |
|
66.6 |
50.7 |
|
50.3 |
56.1 |
60.1 |
Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates
80