The mining industry seems to be hitting record highs recently, with S32:ASX reporting record annual productions, but can this last forever and Should I buy South32 Shares?

Should I Buy South 32 Limited Shares Price

The South32 stock price is up 42% in the past year, this is likely linked to the record productions update as provided in the June 2021 Quarterly Report. S32 shares have a 52-week range of 2.01 – 3.10 and are trading towards the top end of the range at $3 per share. The current market capitalization is AUD$14Billion

South32 Shares Price

South32 shares have performed exceptionally well compared to markets returns of 21.73% in the last year. And our portfolio’s return of around double the market and up over 40%. View our portfolio here.

Should I Buy South 32 Limited Shares: About

South32 is a globally diversified mining and metals company producing bauxite, alumina, aluminium, energy and metallurgical coal, manganese, nickel, silver, lead and zinc in Australia, Southern Africa and South America.

South32 Shares Dividend History

S32:ASX shares typically announce a dividend with the release of its half-yearly results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (Interim Dividend) and September (Final Dividend).

Should I Buy S32 Shares, Should I Buy South32 Shares, S32 Dividend Dates
South32 Pays Dividends Twice Yearly

South 32 Limited has typically paid a dividend every year since listing in 2015, the dividend up until the COVID-19 pandemic was typically increasing every year and was fully franked for a period of time. South32 does not currently have a dividend reinvestment plan.

S32 Dividend History
What is the Current S32 Dividend Yield?

The Dividend Yield for ASX:S32 Shares at the moment is approximately 1.6%.

Should I Buy South32 Shares For Their Dividend?

Based on their current yield S32 does have a decent dividend yield of 1.6%. This seems attractive compared to the average term deposit yield of 0.4%. However, is below the current ASX 300 market average gross yield of 3.24%.

We will never purchase a company based solely on their dividend as this is often not a reliable metric for overall performance. Not all dividend stocks are solid investments.

A massive dividend yield can be a red flag as it may be altered due to a massive fall in share price, poor prospects, or a special one-off dividend. For this reason, it is important to consider the business as a whole.

Another high dividend stock that we like is CBA. CBA has a gross yield of around 4.25%, and a strong balance sheet to support this. You can have a read of our CBA dividend report here.

South32 Dividend Yield Compared to The Big 4 Banks

Should I Buy South32 Shares: Investor Sentiment

After surveying 248 Investors about their current S32 shares sentiment: BUY-HOLD-SELL, as well as their target price over the next 12-months here are the results;

South32 Investor Sentiment

The results from this survey show there is currently no real strong investor sentiment on S32 shares. So how much are MPL shares worth? Let’s get into it.

S32:ASX Fundamentals

Market Cap$14billion
Shares Issued4.7billion shares
ASX Rank35
PEn/a
EPS-$0.033
Volume 4W Avg11,087,462
VWAP2.9981
PEGn/a
NTA per Share$2.51
ROE
DebtUS$421 million
EquityUS$9.44billion
Should I Buy South32 Shares: Fundamentals

Market Cap and NTA comments:

South32 is a mid-cap company with a total market capitalization of just over $14 Billion. This places it as the 35th largest listed ASX company by market cap. For a company of this size, we expect to see an established company in the process of expanding in industries that are expected to experience rapid growth. Because they don’t tend to be as established as large-cap companies, they generally involve a higher level of risk.

Their current Net tangible Assets per share is $2.51, meaning over 80% of their share price is backed by tangible assets. This is a solid result.

Should I Buy South32 Shares Financials

In June ASX:S32 released their Quarterly report to the market here are the highlights:

  • Record annual production at Worsley Alumina and Brazil Alumina
  • Record annual production at Australian Maganese and a 21% increase on South African Maganese
  • Steady Year on Year production and a 21% increase in average realised prices at aluminium smelters
South32 Production Summary from Quarterly Report FY21

The company also flag in their strategy and business update FY2021 that the company is well-positioned to take advantage of the stronger commodity prices. Aluminium and Maganese are two of S32’s largest produced commodities and this also aligns with the commodities which have seen some of the most significant uplifts this half.

South32 revenue contribution by commodity
South32 reference prices for commodities in Q3 FY21 to H1 FY21

Income Statement

From the company HY2021 report for the half ended 31 December 2021.

We can see from S32 most recent Half Year Report (Dec 2020), revenues have marginally decreased on the PCP from $3.2B to $2.9B representing a slight decrease.

The group has managed to maintain low expenses and finished up the year with an NPAT of $53 Million. This is a reduction from the H1FY20 of 99million. As you can see the margins in mining are simply not the most attractive, this is as compared to tech companies that have significantly higher margins.

South32 HY2021 Income Statement

Balance Sheet

The group has managed to grow its strong cash position with $1,383 Million. We can see their Current assets and Total assets have remained relatively constant.

S32 finishes the half year up with $9.4 Billion in net assets, which has fallen slightly from the previous year.

South32 1HY21 Balance Sheet

Should I Buy S32 Shares: Prophet’s Take

S32:ASX share price has increased significantly over the past year trading up ~40% at the time of writing.

The company has a decent balance sheet and have a high NTA of $2.51 per share against a share price of $3, which is approximately 80% of their share price is backed by a tangible asset.

With the company continuing to return money to shareholders through their dividends and the low-interest-rate environment, we don’t see any catalysts for massive earnings or share prices for the group. The booming commodity prices may assist the group in the Full Year 2021 result. However, it is worth remembering that mining is a highly cyclical business.

At the current time, we think S32 shares are in range. We don’t see them as a high conviction stock to add to our market-beating portfolio. We also don’t think that the risk is worth the reward on this one, especially as this cycle is probably nearing the peak in our opinion.

Please Remember all Articles Published on Prophet Invest are Opinion Only

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