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South32 Ltd S32

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Morningstar’s Analysis

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Weak First Half for South32, but Second Half Looking Much Better; AUD 3.00 FVE Retained

Analyst Note

| Mathew Hodge, CFA |

No-moat South32’s first-half fiscal 2021 result was weak but met our expectations. Adjusted net profit after tax of USD 136 was broadly in line with last year’s USD 131 million. Adjusted EBIT of USD 282 million was a slight decrease on last year’s USD 293 million with the headwinds from the average 7% reduction in average commodity prices and inflation largely offset by lower costs and higher sales volumes. We expect profitability to lift in the second half with commodity prices generally better. The planned sale of loss-making South African energy coal assets, expected at the end of March, should also benefit South32. Our adjusted net profit forecast for fiscal 2021 is now USD 671 million, or USD 13.7 cents per share, a modest 3% reduction from our prior forecast.

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Company Profile

Business Description

South32 was born of the demerger of noncore assets from BHP in 2015. South32 comprises BHP's former aluminium and manganese businesses and the South African energy coal and New South Wales metallurgical coal businesses. It also owns the Cannington silver/lead/zinc mine in northwest Queensland and the Cerro Matoso nickel mine in Colombia. Cannington silver mine and manganese operations deliver high returns but have relatively short reserve life. The company acquired Arizona Mining, which brings with it the high-grade, and likely low-cost Hermosa deposit in the U.S. The South African thermal coal assets are to be disposed of.

108 St Georges Terrace, Level 35
Perth, WA, 6000, Australia
T +61 893249000
Sector Basic Materials
Industry Other Industrial Metals & Mining
Most Recent Earnings
Fiscal Year End Jun 30, 2021
Stock Type
Employees 14,192