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RESULTS ANALYSIS
Need To Know
- Buyback expanded by US$50m to US$2.4bn after returning US$1.2bn in FY23.
- Production guidance lifted across most divisions.
- Manganese could be a better EV battery material.
Investment Implications
FY23 results overview (vs consensus):
Underlying EBITDA US$2.53bn vs US$2.5bn
Underlying Net Profit US$916m vs US$930m
FY23 dividend US8.1cps vs 8.6cps
Lower commodity prices against last year’s record levels was the main factor behind the fall in underlying EBIT to US$1,616m. The aluminium price cut -US$631m, nickel -US$209m and metallurgical coal -US$550m were the main detractors. Production volumes also took US$539m from the outcome which was weather affected. Higher inflation snipped a further US$271m while a weaker South African rand, Australian dollar and Colombian peso collectively added US$369m.
Increased ownership at Mozal Aluminium and Sierra Gorda added US$240m of earnings at an above group margin of 38%.
Raw material costs were generally higher, and this should carry on into FY24.
S32 returned US$1,225m to shareholders in FY23 via the buyback (US$218m) and just over US$1bn in dividends. The company has extended the buyback by US$50m to US$2.4bn.
Outlook. Production targets for FY24 are set higher against already very good outcomes in FY23. Aluminium was +14%, base metals +17% and manganese +4%. The latter could become more important in EV battery technology if preferences shift towards the better performance and cheaper manganese-rich cathodes .
S32’s key commodities have long term fundamental price support, particularly due to the global energy transition. Copper is entering a period of low global inventories which will support the price. Global supply of copper generally is likely to be short by about 1mtpa through to 2040, according to industry specialists Wood Mackenzie.
A 10% change in the aluminium price would impact S32’s EBIT by US$304m, alumina by US$190m and metallurgical coal by US$132m. A 10% change in the Australian dollar is worth US$227m to EBIT.
Investment View
S32 has a global portfolio of high quality base metal assets that are fundamentally important to the so-called energy transition. The long term demand seems assured leaving S32 to focus on excellent execution. We maintain our Hold recommendation.
Stock Overview
Share Price
Company Overview
S32 is a global commodities producer of bauxite, alumina, aluminium, copper, zinc, and nickel. It has operations in Australia, South Africa, North America and South America. Its main focus is base metals.
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