Solid as Metal
FY22 RESULT
Need to know:
- Solid result - beat on earnings and dividend, along with a special dividend
- FCF came in well above consensus. Balance sheet strong - US$538m net cash position.
- Guidance suggests production improvement as well as cost expansion for FY23. Likely to dull market reaction to the earnings beat.
Investment Implications
FY22 Result: Solid result off the back of favourable commodity conditions. Earnings ahead of market expectations with a positive beat on the final dividend, supported by a 3cps special dividend. Free cash flow at record levels, well above market. First production guidance for FY23 in-line with the market, cost guidance is higher. The balance sheet finished in a strong net cash position.
Result Details: EBITDA US$4.8bn vs US$4.7bn market. Underlying profit US$2,600m vs US$2,576m market. EPS 56cps vs 55cps market. DPS 25.7cps vs 24.7cps market (+3cps special dividend). Free cash flow US$2.6bn vs US$2.3bn market. Balance sheet net cash at US$538m. Guided to deliver 14% copper equivalent growth in FY23.
Cost guidance is given for a few core areas; Worsley (+8%), Cannington (-7%) and Cerro Matoso (+9%), Aus Manganese (+7%), SA Manganese (-6%), Illawarra Metallurgical coal (-10%). Overall costs guidance is ~10-15% higher than the market.
Outlook: FY23 production guidance for +14% Group copper equivalent production driven by; 1) the 45% interest in Sierra Gorda; 2) a restart of Brazil aluminium with 100% renewable energy; 3) additional 16.6% shareholding in Mozal Aluminium; 4) improving projects and capacity creep at current operations.
Increasing investment in product portfolios; $785m in FY23e Safe and Reliable, US$170m for Improvement and life extension. US$290m in FY23e Growth.
Summary: Decent result. Likely to see a positive reaction to the earnings beat and special DPS. Higher cost guidance will not come as a complete surprise to the market. Management reiterated they’re confident in their ability to achieve growth despite cost headwinds.
We rate S32 a Hold. Operating performance from S32 remains a strong point. Whilst operating cost guidance implies earnings downgrades to market earnings, S32 offers strong leverage to spot commodity prices which currently imply double-digit upgrades to market earnings across FY23E and strong cash generation over FY23.
This commentary reflects our initial view. For detailed reports for companies under Sandstone Insights coverage, see our latest research notes for our investment view and specific risks associated with investing in these companies.
Stock overview
Key properties
Financial Forecasts
Share Price
Company overview
South32 Limited is a mining and metals company. It operates in Australia, Brazil, Chile, Mozambique, and South Africa.
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