vk.com/id446425943

African Rainbow Minerals – BUY

Renaissance Capital

14 January 2019

Metals & Mining

Figure 90: African Rainbow Minerals, ZARmn (unless otherwise stated)

African Rainbow Minerals	ARIJ.J	Target price, ZAR:	150
Market capitalisation, ZARmn:	29,947	Last price, ZAR:	136
Enterprise value, ZARmn:	31,146	Potential 12-month return:	20.5%

Jun-YE	2017	2018	2019E	2020E	2021E
Income statement
Revenue	8,158	8,346	9,745	10,188	10,771
Underlying EBITDA	922	1,799	2,653	2,664	2,894
Underlying EBIT	214	1,058	1,802	1,789	1,858
Net interest	-185	-183	135	326	425
Equity accounted income	3,446	4,129	4,159	2,471	2,108
Taxation	409	-573	-543	-592	-639
Other	-2,512	131	-451	-478	-409
Net profit for the year	1,372	4,562	5,103	3,516	3,342
Headline earnings	3,215	4,851	5,103	3,516	3,342
HEPS, ZAc	1,684	2,526	2,670	1,840	1,749
Thomson Reuters consensus EPS, ZAc			2,406	1,987	2,129
DPS declared, ZAc	650	1,000	1,400	1,350	1,290
Underlying EBIT	832	1,026	1,563	1,666	1,422
Platinum
EBIT margin	16%	18%	24%	24%	20%
Nkomati	120	18	-42	-31	400
EBIT margin	6%	1%	-2%	-2%	17%
Goedgevonden	78	408	579	466	365
EBIT margin	9%	40%	40%	33%	27%
Other	-816	-394	-298	-312	-329
Underlying EBIT	214	1,058	1,802	1,789	1,858
Income statement ratios*
EBITDA margin	31%	34%	37%	30%	28%
EBIT margin	3%	13%	18%	18%	17%
HEPS growth	241%	50%	6%	-31%	-5%
Dividend payout ratio	39%	40%	52%	73%	74%
Input assumptions
$/ZAR	13.60	12.85	14.25	14.25	14.09
Platinum, $/oz	988	940	820	970	1,134
Iron ore (62%Fe, CIF China), $/t	69	67	65	61	62
Manganese ore (44%, CIF China), $/mtu	5.72	6.79	6.32	5.24	5.41
Nickel, $/t	10,134	12,474	11,593	13,176	14,541
Required breakeven price
3PGMs, $/3PGM oz	811	860	872	932	986
Nickel, $/t	9,132	12,384	12,444	13,749	11,308
Iron ore, $/t	37	46	44	50	53
Manganese ore, $/mtu	3.84	4.71	5.05	4.32	4.47
Export thermal coal, $/t	62	65	65	66	67
Sales volumes
PGMs in concentrate - attributable, k oz	324	316	316	316	316
Iron ore, kt	8,638	8,937	8,700	8,700	8,700
Manganese ore, kt	1,487	1,589	1,550	1,550	1,860
Nickel, t	7,938	6,651	6,825	6,825	7,875
Attributable Cu eq volumes, kt	296	297	284	284	297
Volume growth	-1.2%	0.3%	-4.4%	0.0%	4.5%

Contribution to FY19E attributable underlying EBITDA

	Platinum
Coal	13%
22%	Nickel
	1%

Iron ore Manganese 31%

33%

Jun-YE				2019E	2020E	2021E
	2017	2018
Balance sheet
Net operating assets	23,738	24,822		24,708	23,805	23,224
Investments	1,573	1,561		1,772	1,772	1,772
Equity	23,497	25,907		28,009	28,627	29,257
Minority interest	543	1,471		1,561	1,657	1,739
Net debt (cash)	1,271	-995		-3,090	-4,707	-6,000
Balance sheet ratios
Gearing*	5.1%	-4.0%		-12.4%	-19.7%	-25.8%
Net debt to EBITDA plus equity income	0.3x	-0.2x		-0.5x	-0.9x	-1.2x
RoCE (excluding Harmony)	19.9%	23.5%		28.3%	19.9%	18.8%
RoIC	15.9%	22.1%		27.4%	18.5%	16.9%
RoE	13.5%	19.5%		18.9%	12.4%	11.5%
*net debt/(net debt+equity)
Cash flow statement
Operating cash flow	2,312	3,914		6,833	5,893	5,171
Capex (net of disposals)	-981	-944		-1,282	-1,251	-1,163
Other cash flows	2,030	1,179		0	0	0
FCF	3,361	4,149		5,551	4,643	4,007
Equity shareholders' cash	3,390	3,980		5,096	4,515	4,005
Dividends and share buy-backs	-426	-1,714		-3,001		-2,898	-2,712
Movement in net debt	2,964	2,266		2,095	1,617	1,294
Cash flow ratios
Working capital days	66	88		69	67	67
Capex/EBITDA	106.4%	52.5%		48.3%	47.0%	40.2%
Cash conversion	1.1x	0.8x		1.0x	1.3x	1.2x
FCF yield	16.8%	19.1%		22.7%	20.3%	18.5%
Equity shareholders' yield	18.7%	18.7%		19.6%	17.4%	15.4%
Valuation
SoTP DCF valuation and calculation of target price					ZARmn	ZAR/sh
Iron ore					7,406	35.8
Manganese					9,987	48.2
Two Rivers (effective interest = 54%)					2,576	12.4
Modikwa (41.5%)					916	4.4
Nkomati					1,700	8.2
PCB Coal less debt (effective interest = 20.2%)					1,949	9.4
Goedgevonden (effective interest = 26%)					2,228	10.8
Copper and exploration					0	0.0
Harmony at listed market value					2,089	10.1
Corporate and other					-1,522	-7.4
Enterprise value					27,329	132.0
Net cash and other					1,795	8.7
Equity value					29,124	140.7
Plus: equity shareholders' cash/share						25.1
Less: DPS						-13.7
TP, rounded to						150.0
Share price on 7/1/2019						135.8
Expected share price return						10.4%
Plus: expected dividend yield						10.1%
Total implied one-year return						20.5%
Share price range, ZAR:
12-month high on 31/12/2018	144	12-month low on 4/4/2018				90
Price move since high	-5.9%	Price move since low				50.5%
Calculation of discount rate
WACC	16.2%	Cost of debt				10.0%
Risk-free rate	9.0%	Tax rate				28%
Equity risk premium	5.5%	After-tax cost of debt				7.2%
Beta	1.30	Debt weighting				0%
Cost of equity	16.2%	Terminal growth rate				2.0%
Valuation ratios
Jun-YE	2017	2018		2019E	2020E	2021E
P/E multiple	5.7x	4.4x		5.1x	7.4x	7.8x
Dividend yield	6.8%	9.0%		10.3%	9.9%	9.5%
EV/EBITDA	4.6x	3.7x		3.6x	4.5x	4.3x
P/B	0.8x	0.8x		0.9x	0.9x	0.9x
NAV per share, ZAR	124	136		147	150	153

* Proportionately consolidated

Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates

55

vk.com/id446425943

Alrosa – BUY

Renaissance Capital

14 January 2019

Metals & Mining

Figure 91: Alrosa, RUBmn (unless otherwise stated
Alrosa		ALRS.MM						Target price, RUB:					109.0
Market capitalisation, RUBmn:		736,555						Share price, RUB:					101.6
Enterprise value, RUBmn:		837,502						Potential 12-month return:					20.1%
Dec-YE	2016	2017	2018E	2019E	2020E		Dec-YE	2016	2017		2018E	2019E	2020E
Income statement							Balance sheet ratios
Revenue	317,090	275,381	302,368	336,787	355,901		Gearing (net debt/(net debt+equity)	24.5%	24.4%		18.7%	16.4%	13.8%
Adjusted EBITDA	176,418	126,890	162,410	172,162	181,928		Net debt/(EBITDA+dividends from associat	0.5x	0.7x		0.3x	0.3x	0.2x
Adjusted EBIT	151,750	103,098	139,183	146,384	155,918		RoCE	40.0%	27.4%		39.2%	42.9%	44.2%
EBIT	142,965	99,083	140,265	146,384	155,918		RoIC (after tax)	35.8%	17.6%		30.0%	33.5%	34.6%
Net interest	24,124	-1,320	-12,662	-8,870	-11,013		RoE	65.3%	30.0%		42.2%	48.0%	48.6%
Taxation	-36,268	-22,174	-27,740 -30,253 -31,879				Cash flow statement
Equity accounted income	2,650	3,027	3,681	3,665	3,795
Net profit for the year	133,471	78,616	103,544	110,925	116,821		Operating cash flow	143,138	100,464		146,925	130,108	145,843
Minority interest in profit	-2,079	-1,541	-2,086	-2,219	-2,336		Capex	-31,752	-26,944		-31,600	-26,400	-28,000
Attributable net profit	131,392	77,075	101,457	108,707	114,484		Other FCF	0	0		30,801	0	0
							FCF	111,386	73,520		146,126	103,708	117,843
EPS, RUB	17.85	10.47	14.12	15.08	15.88		Equity shareholders' cash	134,076	63,014		129,410	94,970	107,371
							Dividends and share buy backs	-14,775	-65,706		-94,823	-90,247	-99,429
Thomson Reuters consensus EPS, RUB			14.72	15.89	16.05		Surplus (deficit) cash	119,301	-2,692		34,588	4,723	7,942
DPS declared, RUB	2.09	8.93	16.40	12.95	15.53		Cash flow ratios
Adjusted EBIT		-0.41345
							Working capital days	104	145		112	115	115
Diamonds	205,235	132,879	171,624	187,647	199,173		Cash conversion	1.0x	0.8x		1.3x	0.9x	0.9x
Transportation	933	1,298	1,869	856	904		FCF yield	17.3%	10.1%		19.9%	13.3%	15.3%
Social infrastructure	-5,559	-3,537	-3,409	-4,977	-5,259		Equity shareholders' yield	23.9%	9.8%		18.9%	13.0%	14.7%
Other (SG&A, other expenses)	-48,859	-27,542	-30,901	-37,142	-38,899		Capex/Adjusted EBITDA	18.0%	21.2%		19.5%	15.3%	15.4%
Income statement ratios							Valuation
EBITDA margin	56%	46%	54%	51%	51%		SoTP DCF valuation and calculation of target price					RUBmn	RUB/sh
EBIT margin	45%	36%	46%	43%	44%		Diamonds					993,344	137.8
EPS growth	328%	-41%	35%	7%	5%		Transportation					6,604	0.9
Payout ratio	12%	85%	116%	86%	98%		Other					-127,648	-17.7
Input assumptions							Total enterprise value					872,300	121.0
							Net debt as at 31 December 2017					-86,047	-11.9
Rough diamond index, $/c	197	198	202	202	208		Cash used in share buy-backs					14,077	2.0
Alrosa average gem realisations, $/ct	150.1	135.4	160.3	157.1	162.3		Other investments					0	0.0
Gem realisations vs. index prices	76%	68%	80%	78%	78%		Minority interest					-14,900	-2.1
Alrosa average industrial realisations, $/ct	8.5	7.6	9.7	10.4	10.8		Equity value as at 8/1/2019					785,430	109.0
Alrosa average realisations, $/ct	110.8	101.0	118.3	113.1	116.9
							Rounded to						109.0
RUB/$	67	58	63	67	68		Share price on 7/1/2019						101.6
All in cash costs, net of by-products							Expected share price return						7.3%
							Plus: expected dividend yield						12.8%
Estimated required breakeven price, $/c	128	148	131	138	142		Total implied one-year return						20.1%
Production volumes, kct							Share price range, RUB:
Diamonds							12-month high on 1/10/2018	107.9	12-month low on 12/1/2018				75.1
Aikhal division	12,228	13,010	11,300	8,962	8,539		Price move since high	-5.9%	Price move since low				35.2%
Mirny division	7,808	7,231	4,415	3,692	3,691
Udachny division	3,167	3,821	5,288	8325	8343		Calculation of discount rate
Nyurba division	6,793	7,713	7,351	7,321	7,382
Severalmaz	2,217	2,642	3,320	3,823	4,198		WACC	14.0%	Cost of debt				8.5%
Almazy Anabara & Nizhne-Lenskoye	5,145	5,197	4,977	4,973	4,999		Risk-free rate	7.0%	Tax rate				20%
Other production	0	0	-5	0	0		Equity risk premium	6.0%	After-tax cost of debt				6.8%
Total	37,358	39,614	36,646	37,096	37,152		Beta	1.30	Debt weighting				10%
Sales volumes , kct							Cost of equity	14.8%	Terminal growth rate				4.0%
							Valuation ratios
Gem-quality	28,900	30,100	26,700	27,856	28,068
Industrial	11,100	11,100	10,300	11,938	12,029		Dec-YE	2016	2017		2018E	2019E	2020E
Total	40,000	41,200	37,000	39,794	40,097		P/E multiple	4.3x	8.3x		6.7x	6.7x	6.4x
Balance sheet							Dividend yield	2.7%	10.3%		17.5%	12.7%	15.3%
							EV/(EBITDA+Equity income)	3.6x	5.6x		4.4x	4.4x	4.1x
Net operating assets	340,325	352,534	273,784	284,653	279,478		P/B	2.2x	2.4x		3.1x	3.1x	3.0x
Equity	257,202	266,825	223,576	238,945	241,479		NAV per share, USc	52.1	62.1		48.9	49.5	49.3
Minority interest	-232	-338	-1,250	-1,029	-795		NAV per share, RUB	34.9	36.2		30.7	33.1	33.5
Net debt	83,355	86,047	51,459	46,736	38,794

Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates

56

vk.com/id446425943

Anglo American – HOLD

Renaissance Capital

14 January 2019

Metals & Mining

Figure 92: Anglo American, $mn (unless otherwise noted)

Anglo American	AGLJ.J	Target price, ZAR:	320
Market capitalisation, $mn:	31,660	Share price, ZAR:	312
Enterprise value, $mn:	45,876	Potential 12-month return:	8.6%

Dec-YE			2016	2017	2018E	2019E	2020E
Income statement
Revenue			23,142	28,650	28,990	27,691	27,880
Underlying EBITDA			6,104	8,823	9,210	9,308	8,349
Underlying EBIT			3,822	6,247	6,454	6,421	5,399
Net interest			-567	-635	-474	-318	-262
Taxation			-821	-1,770	-2,016	-1,931	-1,627
Minority interest in profit			-329	-891	-899	-936	-844
Net profit for the year			1,594	3,166	2,870	3,236	2,666
Underlying earnings			2,210	3,272	3,145	3,236	2,666
Underlying EPS, USc			172	257	247	255	210
Thomson Reuters consensus EPS, USc					246	250	228
DPS declared, USc			0	102	99	127	199
Underlying EBIT			185	512	826	1,051	1,289
Platinum
EBIT margin			4%	10%	15%	22%	26%
Diamonds			1,019	873	759	779	792
EBIT margin			17%	15%	13%	13%	13%
Copper			261	923	1,253	1,074	1,004
EBIT margin			9%	22%	27%	25%	23%
Nickel			-15	0	92	37	113
EBIT margin			-4%	0%	16%	7%	18%
Iron ore and manganese			1,275	1,978	1,207	1,515	1,280
EBIT margin			46%	57%	36%	48%	42%
Coal			1,112	2,274	2,599	2,271	1,230
EBIT margin			21%	32%	35%	33%	20%
Other			-15	-313	-282	-307	-309
Underlying EBIT			3,822	6,247	6,454	6,421	5,399
Income statement ratios
EBITDA margin			26%	31%	32%	34%	30%
EBIT margin			17%	22%	22%	23%	19%
EPS Growth			169%	49%	-4%	3%	-18%
Dividend payout ratio			0%	40%	40%	50%	95%
Input assumptions
$/ZAR			14.70	13.31	13.24	14.31	14.14
Platinum, $/oz			988	950	880	870	1,070
Copper, USc/lb			221	280	296	272	289
Hard coking coal, $/t			114	210	202	190	163
Iron ore fines (62%Fe, CIF China), $/t			58	71	66	62	62
Required breakeven price
Breakeven price - 3PGM, $/oz			754	774	803	759	701
Breakeven price - copper, USc/lb			198	216	206	208	228
Breakeven price - coking coal, $/t			85	129	122	122	123
Breakeven price - Export thermal coal, $/t			46	59	60	62	71
Sales volumes
Platinum, koz			2,416	2,505	2,430	2,000	2,000
Diamonds (consolidated sales), mn ct			30.0	33.1	32.4	30.3	30.3
Total iron ore, mnt			59	61	46	60	65
Total copper segment, kt			577	579	660	663	653
Metallurgical coal, mnt			20.7	19.8	21.4	22.0	22.0
Attributable Cu eq volumes, kt			2,962	2,910	2,700	2,768	2,834
Volume growth			0.1%	-1.7%	-7.2%	2.5%	2.4%
Contribution to FY18E attributable underlying EBITDA
				Platinum (80% of
				AMS)
Coal				11%		Diamonds (85% of
						De Beers)
38%						13%
						Copper
Samancor					Nickel	16%
Manganese
	Minas Rio Kumba Iron Ore				2%
8%
	-4%			(51%)
				8%

Dec-YE				2018E	2019E	2020E
	2016	2017
Balance sheet
Net operating assets	32,315	33,172		31,972	31,909	32,872
Financial instruments	497	211		169	195	205
Equity	19,016	22,972		23,343	25,062	25,727
Minority interest	5,309	5,910		5,719	5,953	6,164
Net debt	8,487	4,501		3,080	1,089	1,186
Balance sheet ratios
Gearing*	30.9%	16.4%		11.7%	4.2%	4.4%
Net debt to EBITDA	1.4x	0.5x		0.3x	0.1x	0.1x
RoCE	10.8%	17.8%		18.8%	19.3%	15.6%
RoIC (after tax)	6.0%	15.1%		10.3%	14.6%	10.5%
RoE	12.4%	15.6%		13.6%	13.4%	10.5%
Cash flow statement
Operating cash flow	4,573	8,101		6,137	8,301	6,489
Capex (net of disposals)	-2,388	-2,150		-2,240	-3,950	-3,868
Other cash flows	2,045	-688		-182	0	0
FCF	4,230	5,263		3,715	4,351	2,621
Equity shareholders' cash	4,423	4,607		2,732	3,507	1,904
Dividends and share buy-backs	0	-621		-1,311	-1,516	-2,000
Surplus (deficit) cash	4,423	3,986		1,421	1,990	-96
Cash flow ratios
Working capital days	52	33		32	20	23
Capex/EBITDA	43.4%	28.0%		28.7%	49.5%	53.2%
FCF yield	15.9%	16.9%		9.9%	12.2%	7.3%
Equity shareholders' yield	34.7%	22.1%		9.5%	12.3%	6.7%
Cash conversion	2.0x	1.4x		0.9x	1.1x	0.7x
Valuation
SoTP DCF fair value and calculation of target price					$mn	ZAR/sh
Platinum					8,248	91.5
Diamonds					6,962	77.3
Coal					6,745	74.9
Copper					5,957	66.1
Nickel					981	10.9
Kumba Iron Ore					3,269	36.3
Samancor manganese					3,535	39.2
Anglo Ferrous Brazil					1,336	14.8
Corporate & other					-3,966	-44.0
Total enterprise value excluding minority interests					33,068	367.0
Attributable net debt as at 31 December 2017					-4,536	-50.3
Investments as at 31 December 2017					211	2.3
Equity value as at 8/1/2019					28,743	319.0
Rounded to						320.0
Share price on 7/1/2019						311.6
Expected share price return						2.7%
Plus: expected dividend yield						5.9%
Total implied one-year return						8.6%
Share price range, ZAR:
12-month high on 4/10/2018	336	12-month low on 4/4/2018				262
Price move since high	-7.2%	Price move since low				19.2%
Calculation of discount rate
WACC	9.5%	Cost of debt				5.0%
Risk-free rate	4.0%	Tax rate				30%
Equity risk premium	5.0%	After-tax cost of debt				3.5%
Beta	1.30	Debt weighting				15%
Cost of equity	10.5%	Terminal growth rate				3.0%
Valuation ratios
Dec-YE	2016	2017		2018E	2019E	2020E
P/E multiple	5.8x	6.4x		9.1x	8.8x	10.7x
Dividend yield	0.0%	6.2%		4.4%	5.7%	8.8%
EV/EBITDA	4.8x	4.1x		4.8x	4.5x	4.9x
P/B	0.7x	0.9x		1.2x	1.1x	1.1x
NAV per share, $	14.8	18.0		18.4	19.7	20.3
NAV per share, ZAR	217	240		243	282	286

* Gearing defined as net debt/(net debt +equity)

Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates

57

vk.com/id446425943

Assore – HOLD

Renaissance Capital

14 January 2019

Metals & Mining

Figure 93: Assore, ZARmn (unless otherwise stated)

Assore	ASRJ.J	Target price, ZAR:	300
Market capitalisation, ZARmn:	40,815	Last price, ZAR:	294
Enterprise value, ZARmn:	33,863	Potential 12-month return:	10.3%

Jun-YE	2017	2018	2019E	2020E	2021E
Income statement
Revenue	5,945	6,306	5,751	6,226	6,510
Underlying EBITDA	2,237	1,846	1,680	1,685	1,791
Underlying EBIT	2,120	1,683	1,493	1,484	1,580
Investment and other income	372	649	738	843	1,058
Interest paid	-20	-19	-12	0	0
Taxation	-583	-646	-621	-652	-739
Equity income	3,249	3,508	3,590	2,132	1,962
Minority interest in profit	-117	-56	17	18	18
Net profit for the year	5,021	5,119	5,204	3,826	3,880
Headline earnings	5,209	5,109	5,204	3,826	3,880
HEPS, ZAc	5,410	4,953	5,045	3,709	3,761
Thomson Reuters consensus EPS, ZAc			5,328	3,903	4,186
DPS declared, ZAc	1,400	2,200	2,610	2,190	2,500
Underlying EBIT	1,200	704	473	588	636
Other mining and trading business
EBIT margin	20%	11%	8%	9%	10%
Commissions on sales and technical fees	920	979	1,020	895	943
Total consolidated	2,120	1,683	1,493	1,484	1,580
Equity accounted: Assmang	2,881	2,115	2,239	1,185	1,033
Iron ore
EBIT margin	36%	29%	30%	18%	16%
Manganese	1,681	2,553	2,809	1,837	1,764
EBIT margin	33%	40%	40%	29%	26%
Chrome	-5	-29	0	0	0
Underlying EBIT*	6,677	6,322	6,541	4,505	4,377
Income statement ratios
EBITDA margin *	41%	37%	38%	30%	29%
EBIT margin *	35%	31%	32%	24%	22%
HEPS growth	220%	-8%	2%	-26%	1%
Dividend payout ratio	38%	60%	70%	80%	90%
Input assumptions
Iron ore spot (CIF China), $/t	69	67	65	61	62
Manganese ore (44%, CIF China), $/mtu	5.72	6.79	6.32	5.24	5.41
Ferro Manganese - CIF, $/t	1,166	1,341	1,169	1,100	1,135
Chrome ore, $/t	278	207	181	189	202
ZAR/$	13.60	12.85	14.25	14.25	14.09
Required breakeven price
Iron ore, $/t	42	45	47	52	53
Manganese ore, $/mtu	4.37	5.08	4.58	4.37	4.55
Chrome ore, $/t	208	153	153	158	168
Assmang sales volumes (100%)	17.3	17.9	17.4	17.4	17.4
Iron ore, mnt
Manganese ore, mnt	3.0	3.2	3.1	3.1	3.7
Manganese alloys, kt	303	378	400	400	400
Chrome ore, kt	1,279	1,557	1,400	1,500	1,500
Attributable Cu eq volumes, kt	217	227	223	223	233
Volume growth	5.7%	4.5%	-1.8%	0.0%	4.4%

Contribution to FY19E attributable underlying EBITDA

	Other mining,
	trading and
	shipping activities	Iron ore
	21%
		38%

Manganese

41%

Jun-YE				2019E	2020E	2021E
	2017	2018
Balance sheet
Net operating assets	17,547	17,915		17,007	17,065	17,103
Investments	253	270		208	208	208
Equity	22,872	26,091		27,670	28,226	28,862
Minority interest	-24	-41		-44	-48	-52
Net (cash) debt	-5,047	-7,865		-10,411	-10,905	-11,500
Balance sheet ratios
Gearing*	-28.3%	-43.2%		-60.3%	-63.0%	-66.2%
Net debt to EBITDA plus equity income	-0.9x	-1.5x		-2.0x	-2.9x	-3.1x
RoCE	39.5%	35.0%		36.7%	25.9%	25.1%
RoIC (after tax)	30.8%	27.3%		28.6%	20.2%	19.5%
RoE (ex. cash)	28.6%	25.6%		25.6%	17.2%	16.3%
*net debt/(net debt+equity)
Cash flow statement
Operating cash flow	4,904	4,746		5,845	3,438	3,357
Capex	-127	-367		-272	-296	-295
Other cash flows	-1,422	-25		0	0	0
FCF	3,356	4,354		5,573	3,143	3,062
Equity shareholders' cash	3,473	4,718		6,171	3,764	3,838
Dividends and share buy-backs	-1,095	-1,900		-3,626	-3,269	-3,243
Movement in net debt	2,378	2,818		2,545	495	595
Cash flow ratios
Working capital days	30	12		17	14	12
Capex/EBITDA *	19.8%	25.6%		26.6%	34.1%	31.6%
FCF yield	20.2%	19.4%		28.0%	16.2%	16.3%
Equity shareholders' yield	16.0%	15.5%		20.3%	12.4%	12.6%
Cash conversion	0.7x	0.9x		1.2x	1.0x	1.0x
Valuation
SoTP DCF fair value					ZARmn	ZAR/sh
Assmang					18,494	132
Marketing fee					5,178	37
Other mining and trading					3,239	23
Other					0	0
Enterprise value					26,911	193
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					38,546	276
Plus: equity shareholders' cash/share						47
Less: DPS						-25
Rounded to						300
Share price on 7/1/2019						294
Expected share price return						1.9%
Plus: expected dividend yield						8.4%
Total implied one-year return						10.3%
Share price range, ZAR:
12-month high on 18/1/2018	430	12-month low on 20/7/2018				252
Price move since high	-31.6%	Price move since low				16.6%
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				0%
Cost of equity	15.5%	Terminal growth rate				3.0%
Valuation ratios
Jun-YE	2017	2018		2019E	2020E	2021E
P/E multiple	4.7x	7.0x		6.9x	9.3x	9.2x
Dividend yield	6.7%	7.5%		8.9%	7.4%	8.5%
Average enterprise value, ZARmn	24,246	33,217		30,631	30,132	29,534
EV/(EBITDA + equity income)	4.4x	6.2x		5.8x	7.9x	7.9x
P/B	1.3x	1.6x		1.5x	1.5x	1.4x
NAV per share, ZAR	164	187		198	202	207
Net cash (debt) per share, ZAR	36	56		75	78	82

* Proportionately consolidated

Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates

58

vk.com/id446425943

BHP – HOLD

Renaissance Capital

14 January 2019

Metals & Mining

Figure 94: BHP, $mn (unless otherwise stated)
BHP	BILJ.J	Target price, ZAR:	300
Market capitalisation, $mn:	110,086	Share price, ZAR:	297
Enterprise value, $mn:	131,291	Potential 12-month return:	9.8%

Jun-YE	2017	2018	2019E	2020E	2021E
Income statement
Revenue	38,285	43,650	41,690	40,472	40,917
Underlying EBITDA	20,296	23,183	22,466	20,454	20,105
Underlying EBIT	12,391	16,564	15,643	13,852	13,489
Net interest	-1,431	-1,245	-1,091	-1,012	-992
Taxation	-4,100	-7,007	-4,780	-4,299	-4,179
Minority interest in profit	-332	-1,118	-823	-894	-968
Attributable profit	5,890	4,823	8,950	7,648	7,350
Underlying attributable profit	6,732	8,933	8,950	7,648	7,350
Underlying EPS, USc	127	168	174	152	145
Thomson Reuters consensus EPS, USc			184	166	174
DPS declared, USc	83	118	241	137	145
Underlying EBIT	-777	467	0	0	0
Petroleum - US onshore
EBIT margin	-36%	47%	-	-	-
Petroleum - Conventional	1,349	1,082	1,710	1,295	1,145
EBIT margin	29%	25%	31%	27%	25%
Copper	1,985	4,330	2,494	3,185	3,595
EBIT margin	27%	37%	25%	29%	30%
Iron ore	7,174	7,194	7,442	6,811	6,999
EBIT margin	49%	49%	51%	49%	49%
Coal	3,050	3,683	4,239	2,806	1,997
EBIT margin	40%	41%	45%	34%	26%
Other	-390	-192	-241	-245	-246
Underlying EBIT	12,391	16,564	15,643	13,852	13,489
Income statement ratios
EBITDA margin	55%	55%	55%	52%	51%
EBIT margin	32%	38%	38%	34%	33%
EPS growth	455%	33%	4%	-13%	-5%
Dividend payout ratio	66%	70%	139%	90%	100%
Input assumptions
Brent crude oil, $/bbl	51	64	69	63	61
Iron ore fines (62%Fe, CIF China), $/t	69	67	65	61	62
Copper, USc/lb	245	306	275	278	296
Hard coking coal, $/t	190	200	196	166	157
$/AUD	0.75	0.78	0.72	0.75	0.80
Oil breakeven price - conventional, $/boe	29	37	48	47	44
Copper breakeven price, $/t	3,752	4,001	3,960	3,866	4,018
Iron ore breakeven price, $/t	34	34	34	38	36
Coking coal breakeven price, $/t	81	92	84	93	102
Sales volumes (BHP's share)
Petroleum products, MMboe*	209	193	118	111	108
Iron ore, mnt	231	237	241	253	256
Copper, kt	991	1,238	1,179	1,235	1,258
Metallurgical coal, mnt	38	41	44	45	45
Export thermal coal, mnt	28	28	27	28	28
Attributable Cu eq volumes, kt	5,989	6,300	5,888	6,014	5,907
Volume growth	-6.9%	5.2%	-6.5%	2.1%	-1.8%

Contribution to FY19E underlying EBITDA

	US onshore	Conventional
Coal	petroleum	petroleum
22%	0%	16%
		Copper
		21%
Iron ore
41%

Jun-YE				2019E	2020E	2021E
	2017	2018
Balance sheet
Net operating assets	79,194	71,636		62,680	63,904	64,266
Investments	-147	-32		39	39	39
Equity	57,258	55,592		47,268	47,930	48,174
Minority interest	5,468	5,078		5,243	5,421	5,615
Net debt	16,321	10,934		10,208	10,591	10,515
Balance sheet ratios
Gearing*	22.2%	16.4%		17.8%	18.1%	17.9%
Net debt to EBITDA	0.8x	0.5x		0.5x	0.5x	0.5x
RoCE	13.6%	19.5%		20.2%	18.8%	18.0%
RoIC	11.0%	14.6%		12.9%	12.5%	12.1%
RoE	12.1%	15.8%		17.4%	16.1%	15.3%
Cash flow statement
Operating cash flow	17,837	19,610		16,391	15,722	15,597
Capex (net of disposals)	-4,252	-4,979		2,800	-8,000	-7,262
Other	-841	1,159		0	0	0
FCF	12,744	15,790		19,191	7,722	8,335
Equity shareholders' cash	12,659	10,607		18,000	6,602	7,182
Dividends and share buy backs	-2,878	-5,220		-17,274	-6,985	-7,106
Excess cash	9,781	5,387		726	-383	76
Cash flow ratios
Working capital days**	28	20		24	26	26
Capex/EBITDA	21%	21%		-12%	39%	36%
FCF yield	12.3%	13.0%		15.5%	6.2%	6.7%
Equity shareholders' yield	15.5%	10.0%		16.6%	6.1%	6.6%
Cash conversion	1.9x	1.2x		2.0x	0.9x	1.0x
Valuation
SoTP valuation and calculation of target price					$mn	ZAR/sh
US onshore petroleum at estimated sales value					10,369	29
Conventional petroleum					5,855	16
Copper					19,895	55
Iron ore					71,911	199
Coal					18,283	51
Other					-3,239	-9
Enterprise value as at 8/1/2019					123,073	341
Net debt, investments and buy-backs					-16,166	-45
Equity value as at 8/1/2019					106,907	296
Plus: One year forward FCF/share						33
Less: DPS						-26
TP, rounded to						300
Share price on 7/1/2019						297
Expected share price return						1.0%
Plus: expected dividend yield						8.8%
Total implied one-year return						9.8%
Share price range, ZAR:
12-month high	327	12-month low				226
Price move since high	-9.1%	Price move since low				31.5%
Calculation of discount rate
WACC	9.0%	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				20.0%
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		12.3x	14.1x	14.8x
Dividend yield	5.4%	5.9%		11.3%	6.4%	6.8%
EV/EBITDA	5.1x	5.2x		5.5x	6.1x	6.2x
P/B	1.4x	1.9x		2.3x	2.3x	2.2x
NAV per share, $	10.8	10.4		9.3	9.5	9.5
NAV per share, ZAR	146	134		133	135	134

*Net debt/(net debt+equity)

** Working capital/revenue*365

Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates

59