Assore

Jun-YE

2017

2018

2019E

2020E

2021E

Income statement

Revenue

5,945

6,306

6,135

6,365

6,597

Underlying EBITDA

2,250

1,840

1,938

2,117

2,107

Underlying EBIT

2,120

1,683

1,789

1,940

1,915

Investment and other income

372

649

691

833

1,053

Interest paid

-20

-19

-43

-2

0

Taxation

-583

-646

-696

-776

-831

Equity income

3,249

3,508

5,068

4,848

3,663

Minority interest in profit

-117

-56

-16

0

0

Net profit for the year

5,021

5,119

6,791

6,843

5,801

Headline earnings

5,209

5,109

6,793

6,843

5,801

HEPS, ZAc

5,410

4,953

6,585

6,634

5,624

Thomson Reuters consensus EPS, ZAc

4,478

4,205

6,036

4,863

4,141

EPS incl estimated BEE dilution, ZAc

5,522

5,569

4,721

DPS declared, ZAc

1,400

2,200

2,940

3,930

3,740

Underlying EBIT

1,200

704

573

698

745

Other mining and trading business

EBIT margin

20%

11%

9%

11%

11%

Commissions on sales and technical fees

920

979

1,216

1,242

1,170

Total consolidated

2,120

1,683

1,789

1,940

1,915

Equity accounted: Assmang

2,881

2,115

4,474

4,967

3,437

Iron ore

EBIT margin

36%

29%

44%

45%

36%

Manganese

1,681

2,553

2,443

1,838

1,737

EBIT margin

33%

40%

34%

27%

25%

Chrome

-5

-29

-5

0

0

Underlying EBIT*

6,677

6,322

8,700

8,745

7,089

Income statement ratios

EBITDA margin *

41%

37%

42%

42%

36%

EBIT margin *

35%

31%

37%

36%

30%

HEPS growth

220%

-8%

33%

1%

-15%

Dividend payout ratio

38%

60%

60%

80%

90%

Input assumptions

Iron ore spot (CIF China), $/t

69

67

75

88

83

Manganese ore (44%, CIF China), $/mtu

5.72

6.79

6.45

5.24

5.41

Ferro Manganese - CIF, $/t

1,166

1,341

1,147

1,100

1,135

Chrome ore, $/t

278

207

184

192

202

ZAR/$

13.60

12.85

14.18

14.40

14.41

Required breakeven price

Iron ore, $/t

42

42

32

47

50

Manganese ore, $/mtu

4.37

5.21

4.87

4.43

4.60

Chrome ore, $/t

209

151

154

157

165

Assmang sales volumes (100%)

17.3

17.9

17.5

17.4

17.4

Iron ore, mnt

Manganese ore, mnt

3.0

3.2

3.3

3.5

3.7

Manganese alloys, kt

303

378

384

440

440

Chrome ore, kt

1,279

1,557

1,507

1,500

1,500

Attributable Cu eq volumes, kt

204

214

210

219

222

Volume growth

5.7%

4.5%

-1.4%

4.0%

1.5%

Jun-YE

2019E

2020E

2021E

2017

2018

Balance sheet

Net operating assets

17,547

17,915

20,148

20,320

20,404

Investments

253

270

208

208

208

Equity

22,872

26,091

30,324

31,473

32,131

Minority interest

-24

-41

-62

-62

-62

Net (cash) debt

-5,047

-7,865

-9,906

-10,883

-11,457

Balance sheet ratios

Gearing*

-28.3%

-43.2%

-48.5%

-52.9%

-55.4%

Net debt to EBITDA plus equity income

-0.9x

-1.5x

-1.4x

-1.6x

-2.0x

RoCE

39.5%

35.0%

44.8%

42.3%

34.0%

RoIC (after tax)

30.8%

27.3%

34.9%

33.0%

26.5%

RoE (ex. cash)

28.6%

25.6%

32.1%

29.4%

23.0%

*net debt/(net debt+equity)

Cash flow statement

Operating cash flow

4,917

4,739

4,522

6,437

5,334

Capex

-127

-367

-453

-364

-375

Other cash flows

-1,435

-19

40

0

0

FCF

3,356

4,354

4,109

6,072

4,959

Equity shareholders' cash

3,473

4,718

4,599

6,671

5,717

Dividends and share buy-backs

-1,095

-1,900

-2,559

-5,694

-5,143

Movement in net debt

2,378

2,818

2,040

977

575

Cash flow ratios

Working capital days

30

12

21

21

17

Capex/EBITDA *

19.8%

25.6%

23.2%

20.2%

21.4%

FCF yield

20.2%

19.4%

14.4%

22.0%

18.3%

Equity shareholders' yield

16.0%

15.5%

11.9%

17.3%

14.8%

Cash conversion

0.7x

0.9x

0.7x

1.0x

1.0x

Valuation

SoTP DCF fair value

ZARmn

ZAR/sh

Assmang

24,221

173

Marketing fee

6,229

45

Other mining and trading

2,756

20

Other

39

0

Enterprise value

33,245

238

Other Investments

270

2

Net cash (debt) as at 30 June 2018

7,865

56

Dividends retained against BEE vendor loans

3,500

25

DCF fair value for equity

44,880

321

Plus: equity shareholders' cash/share

60

Less: DPS

-36

Rounded to

350

Share price on 26/3/2019

361

Expected share price return

-3.1%

Plus: expected dividend yield

10.1%

Total implied one-year return

7.0%

Share price range, ZAR:

12-month high on 25/9/2018

381

12-month low on 20/7/2018

252

Price move since high

-1.9%

Price move since low

48.1%

Calculation of discount rate

WACC

15.1%

Cost of debt

9.5%

Risk-free rate

9.0%

Tax rate

28%

Equity risk premium

5.0%

After-tax cost of debt

6.8%

Beta

1.30

Debt weighting

5.0%

Cost of equity

15.5%

Terminal growth rate

4.0%

Valuation ratios

Jun-YE

2017

2018

2019E

2020E

2021E

P/E multiple

4.7x

7.0x

6.8x

6.7x

7.9x

Dividend yield

6.7%

7.5%

7.9%

10.5%

10.0%

Average enterprise value, ZARmn

24,246

33,217

42,245

41,268

40,694

EV/(EBITDA + equity income)

4.4x

6.2x

6.0x

5.9x

7.1x

P/B

1.3x

1.6x

1.7x

1.7x

1.6x

NAV per share, ZAR

164

187

217

225

230

Net cash (debt) per share, ZAR

36

56

71

78

82

Jun-YE

2017

2018

2019E

2020E

2021E

Income statement

Revenue

38,285

43,650

45,289

48,643

47,705

Underlying EBITDA

20,296

23,183

24,740

26,976

25,097

Underlying EBIT

12,283

16,429

18,158

20,153

18,219

Net interest

-1,431

-1,245

-1,060

-973

-948

Taxation

-4,100

-7,007

-5,697

-6,384

-5,796

Minority interest in profit

-332

-1,118

-936

-1,078

-1,139

Attributable profit

5,890

3,705

10,082

11,718

10,336

Underlying attributable profit

6,732

8,933

10,050

11,718

10,336

Underlying EPS, USc

127

168

195

232

205

Thomson Reuters consensus EPS, USc

197

196

171

DPS declared, USc

83

118

257

209

205

Underlying EBIT

-777

0

0

0

0

Petroleum - US onshore

EBIT margin

-36%

0%

-

-

-

Petroleum - Conventional

1,349

1,549

2,162

1,587

1,512

EBIT margin

29%

35%

38%

31%

30%

Copper

1,985

4,330

2,759

3,871

4,273

EBIT margin

27%

37%

27%

32%

33%

Iron ore

7,174

7,194

9,462

12,089

10,335

EBIT margin

49%

49%

55%

60%

55%

Coal

3,050

3,683

4,001

2,848

2,341

EBIT margin

40%

41%

42%

34%

28%

Other

-498

-327

-225

-242

-243

Underlying EBIT

12,283

16,429

18,158

20,153

18,219

Income statement ratios

EBITDA margin

55%

55%

56%

57%

55%

EBIT margin

32%

38%

40%

41%

38%

EPS growth

455%

33%

16%

19%

-12%

Dividend payout ratio

66%

70%

132%

90%

100%

Input assumptions

Brent crude oil, $/bbl

51

64

68

63

61

Iron ore fines (62%Fe, CIF China), $/t

69

67

75

88

83

Copper, USc/lb

245

306

282

295

306

Hard coking coal, $/t

190

200

204

170

167

$/AUD

0.75

0.78

0.72

0.76

0.80

Oil breakeven price - conventional, $/boe

29

33

35

40

44

Copper breakeven price, $/t

3,752

4,001

3,943

3,914

3,974

Iron ore breakeven price, $/t

34

34

37

44

44

Coking coal breakeven price, $/t

81

92

91

95

104

Sales volumes (BHP's share)

Petroleum products, MMboe*

209

193

120

116

116

Iron ore, mnt

231

237

244

251

251

Iron ore - WAIO (100% basis), mnt

268

275

279

290

290

Copper - Escondida (100% basis), kt

767

1,209

1,146

1,200

1,200

Other copper, kt

550

543

531

600

644

Metallurgical coal, mnt

38

41

44

45

45

Export thermal coal, mnt

28

28

28

29

29

Attributable Cu eq volumes, kt

5,878

6,191

5,877

6,066

6,128

Volume growth

-6.8%

5.3%

-5.1%

3.2%

1.0%

Conventional

Coal

petroleum

19%

16%

Copper

20%

Iron ore

45%

Jun-YE

2019E

2020E

2021E

2017

2018

Balance sheet

Net operating assets

79,194

71,636

62,131

63,271

64,265

Investments

-147

-32

39

39

39

Equity

57,258

55,592

48,965

49,980

50,190

Minority interest

5,468

5,078

4,778

4,994

5,222

Net debt

16,321

10,934

8,426

8,336

8,892

Balance sheet ratios

Gearing*

22.2%

16.4%

14.7%

14.3%

15.1%

Net debt to EBITDA

0.8x

0.5x

0.3x

0.3x

0.4x

RoCE

13.5%

19.4%

23.6%

27.6%

24.4%

RoIC

10.8%

14.4%

15.8%

18.3%

16.4%

RoE

12.1%

15.8%

19.2%

23.7%

20.6%

Cash flow statement

Operating cash flow

17,837

19,610

18,696

20,034

19,081

Capex (net of disposals)

-4,252

-4,979

-8,000

-8,000

-8,252

Other

-841

1,159

10,296

0

0

FCF

12,744

15,790

20,992

12,034

10,829

Equity shareholders' cash

12,659

10,607

19,139

10,793

9,569

Dividends and share buy backs

-2,878

-5,220

-16,631

-10,703

-10,126

Excess cash

9,781

5,387

2,508

91

-557

Cash flow ratios

Working capital days**

28

20

20

20

20

Capex/EBITDA

21%

21%

32%

30%

33%

FCF yield

12.3%

13.0%

15.8%

9.1%

8.1%

Equity shareholders' yield

15.5%

10.0%

16.0%

9.0%

8.0%

Cash conversion

1.9x

1.2x

1.9x

0.9x

0.9x

Valuation

SoTP valuation and calculation of target price

$mn

ZAR/sh

US onshore petroleum at estimated sales value

0

0

Conventional petroleum

7,641

21

Copper

25,396

70

Iron ore

79,802

221

Coal

19,757

55

Other

4,956

14

Enterprise value as at 27/3/2019

137,553

381

Net debt, investments and buy-backs

-16,186

-45

Equity value as at 27/3/2019

121,367

336

Plus: One year forward FCF/share

36

Less: DPS

-31

TP, rounded to

340

Share price on 26/3/2019

340

Expected share price return

0.0%

Plus: expected dividend yield

9.0%

Total implied one-year return

9.1%

Share price range, ZAR:

12-month high

345

12-month low

215

Price move since high

-1.6%

Price move since low

58.1%

Calculation of discount rate

WACC

9.4%

Cost of debt

4.5%

Risk-free rate

4.0%

Tax rate

30%

Equity risk premium

5.0%

After-tax cost of debt

3.2%

Beta

1.30

Debt weighting

15.0%

Cost of equity

10.5%

Terminal growth rate

3.0%

Valuation ratios

Jun-YE

2017

2018

2019E

2020E

2021E

P/E multiple

12.1x

11.8x

12.1x

10.2x

11.5x

Dividend yield

5.4%

5.9%

10.9%

8.8%

8.7%

EV/EBITDA

5.1x

5.2x

5.4x

4.9x

5.3x

P/B

1.4x

1.9x

2.4x

2.4x

2.4x

NAV per share, $

10.8

10.4

9.7

9.9

9.9

NAV per share, ZAR

146

134

137

142

143