Currently JP Morgan has a price target of $2.85 with an overweight rating on S32. When compared to other ASX list top 100 miners S32 is trading on the lowest multiple under EBITDA. South32’s healthy balance sheet should allow the company to target meaningful acquisitions in the medium term. The company also has a low gearing level which provides flexibility for project developments and increased shareholder returns. S32 will distribute a minimum 40% of underlying earnings as dividends from 1HFY16, although JP Morgan forecast this to rise to 75% medium term.
From the BHP split S32 will be able to implement a regional model, and removal of some of BHP’s organizational design policies & 1SAP procedures that should result in cost benefits which more than offset the US$60mpa increase in corporate costs. Opportunities to add value via cost out, productivity, mergers and acquisitions all look compelling.
Commodity markets have historically been subject to substantial volatility. The key exposure for S32 is aluminium & alumina, although manganese ore, coal, silver, lead, and nickel are also important drivers. The outlook remains positive on aluminium & alumina markets.
South32 has assets on three continents, but is mostly exposed to the AUD and to a lesser extent the ZAR. Revenue is in USD although a large proportion of costs are in local currency. The recent decline in the AUD will benefit S32 and their earnings.
With S32’s options trading commencing this week, we are looking to take a bullish, medium term view on the stock and open a JULY synthetic long position.
Long strategy:
Buying July $2.10 calls
Selling July $2.10 puts
Net cost $0.10
**Please note that the prices quoted above may change as the price of the stock varies**
Please call the office on (07) 5520 8788, if you wish to discuss this strategy.
This email and any files transmitted with it are confidential and are only to be read by those persons to whom it is addressed and is not intended to be relied upon by any person without subsequent written confirmation of it’s contents. If you are not the intended recipient, you are hereby notified that any use, dissemination, forwarding,printing, copying or dealing in any way whatsoever with this e-mail is strictly prohibited. If you have received this e-mail in error, please reply to the sender immediately and delete the document. It is the recipient’sduty to virus scan and otherwise test the enclosed information before using the information or loading attached files onto any computer system. Zodiac Securities Pty Ltd (ABN 76 142 982 554) (“Zodiac Securuities”), holds an Australian financial services (“AFS”) licence (AFSL 398350). iInvest Trading & Advisory Pty Ltd (“iInvest Trading & Advisory”) is a Corporate Authorised Representative (number 431611) of Zodiac Securities. Neither Zodiac Securities or iInvest Trading & Advisory warrants that the information contained in this e-mail is free from viruses, defects, errors, interception or interference and disclaims all responsibility and accepts no liability (including in negligence) for the consequences of any person acting, or refraining from acting on such information prior to the receipt by those persons of subsequent written information. Any views expressed in this message are those of the individual sender, except where that sender specifically states them to be the views of iInvest Trading & Advisory or Zodiac Securities. Any form of reproduction, dissemination, copying, disclosure, modification, distribution and/or publication of this email message is strictly prohibited.
Disclaimer: This strategy is not suitable for all clients. The information provided is for general information only, it does not take into account your particular investment objectives, financial situation or needs. Prior to taking any action or making any investment decision based on the information contained in this email, you should gain professional advice.
Any opinion or forecast or recommendations reflect the information, assumptions and judgment as at the time of writing and may later change without notice. iInvest Trading & Advisory is not responsible for updating any information, advice or opinion in this communication or for correcting or supplementing any information, advice or opinion in this communication for any error, omission or misstatement which may become apparent after its release.
Disclosure iInvest Trading & Advisory, its related companies and directors and employees might have a relevant interest in some securities mentioned but those holdings are not material unless disclosed in this communication. These holdings (or absence of holdings) may change at any time after publication of this communication, without notice.
iInvest Trading & Advisory, its related companies and employees, directors and consultants may earn income, fees, brokerage or commissions or other benefits as a result of recommendations, dealing or transactions in the securities mentioned in this communication. These interests do not influence iInvest Trading & Advisory in giving the advice contained in this communication. The directors, employees, consultants of iInvest Trading & Advisory or of its related companies may trade in these financial products in a manner that is contrary to the recommendations given in this communication.
Confidentiality This information is private and intended only for the particular person to whom it is sent. It remains confidential however it is distributed and it and any part of its advice are not to be communicated or disclosed to any other person without the written consent of iInvest Trading & Advisory.
