Mining - Kumba Iron Ore  

“Check the change in divided policy”          

Share price: R300 

Net shares in issue: 320 million

Market cap: R96 billion

DCF: R260

Trading Sell and Portfolio Sell   

First half earnings down 35% from R14,42 to R9,31 due to a 9% fall in revenue and a 4% increase in expenses. Revenue impacted by a stronger ZAR and lower export prices.

Expenses affected by the 12% rise in mining volumes and 3% rise in product volumes. Unit cash cost up 8% with Kolomela up 2%. Selling & Distribution up 13%.

Cash break-even price is now $46/t at 62% Fe

Cash flow generated from operations down 41%.

Net cash of R11,7 billion is down 16%.

Interim dividend of R14,51 vs. R15,97.

Note that the new dividend policy will target a base dividend range of between 50% and 75% of headline earnings. The R14,51 is made up of R6,98 at 75% of headline earnings and R7,53 a once-off top-up cash dividend. Per the new policy the dividend would have actually been R6,98 on an ongoing basis.

For the full year to December 2018 my revised outlook after the trading statement was for a 25% decline in earnings, from R30,50 to around R23 (R7,4 billion versus R9,7 billion).

To get to R23 on EPS for the year now means R13,69 in H2. That would be a 15% decline in the second half versus H2 F2017. That seems doubtful and we could be lower still.

But even at R23 earnings that is roughly R10,25 final dividend or R24,76 for the full year. But if the same earnings were generated in F2019 the dividend, per new policy, would be R17,25, which is a yield of only 5,7% gross.  

I mentioned in previous notes that R260 per share was a fair value bottom. At R300 I see more reason to take money away and be short.   

Wishing you profitable investing, until next time

Mark N Ingham