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Exxaro – BUY
Renaissance Capital
1 April 2019
Metals & Mining
Figure 115: Exxaro, ZARmn (unless otherwise noted)
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Exxaro |
EXXJ.J |
Target price, ZAR: |
190 |
Market capitalisation, ZARmn: |
59,289 |
Last price, ZAR: |
164 |
Enterprise value, ZARmn: |
64,068 |
Potential 12-month return: |
26.5% |
Dec-YE |
2017 |
2018 |
2019E |
2020E |
2021E |
Income statement |
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Revenue |
22,813 |
25,491 |
26,419 |
32,523 |
32,945 |
Underlying EBITDA |
7,207 |
7,280 |
7,151 |
8,266 |
8,285 |
Underlying EBIT |
5,814 |
5,699 |
5,330 |
6,219 |
6,328 |
Net operating profit |
975 |
5,703 |
5,330 |
6,219 |
6,328 |
Net interest |
-609 |
-316 |
-311 |
-391 |
-388 |
Equity accounted income |
3,952 |
3,259 |
5,721 |
4,837 |
4,182 |
Taxation |
-1,542 |
-1,653 |
-1,405 |
-1,632 |
-1,663 |
Minority interest in profit |
-50 |
-32 |
-82 |
-46 |
-24 |
Net profit for the year |
5,982 |
7,030 |
9,253 |
8,987 |
8,435 |
Headline earnings |
1,560 |
6,707 |
9,253 |
8,987 |
8,435 |
HEPS, ZAR |
5.02 |
26.72 |
36.85 |
35.79 |
33.59 |
Thomson Reuters consensus, ZAR |
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27.09 |
25.49 |
24.40 |
Diluted HEPS, ZAR |
4.50 |
20.57 |
28.21 |
27.35 |
25.67 |
DPS declared, ZAR |
19.55 |
10.85 |
20.70 |
18.10 |
15.50 |
Underlying EBIT |
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Eskom coal |
4,055 |
3,155 |
3,425 |
3,796 |
3,804 |
EBIT margin |
35% |
24% |
24% |
23% |
22% |
Export and other coal |
2,023 |
2,946 |
2,218 |
2,798 |
2,902 |
EBIT margin |
19% |
25% |
19% |
18% |
18% |
Ferrous |
46 |
14 |
6 |
6 |
6 |
Corporate and other |
-310 |
-416 |
-320 |
-380 |
-383 |
Underlying EBIT |
5,814 |
5,699 |
5,330 |
6,219 |
6,328 |
Group EBIT margin |
25% |
22% |
20% |
19% |
19% |
Pigment and mineral sands |
1,485 |
1,307 |
486 |
417 |
278 |
EBIT margin |
35% |
24% |
24% |
23% |
22% |
Iron ore |
3,334 |
3,293 |
6,600 |
5,240 |
4,415 |
EBIT margin |
35% |
24% |
24% |
23% |
22% |
Other equity accounted |
1,060 |
533 |
380 |
540 |
640 |
Proportionately consolidated EBIT |
11,693 |
10,832 |
12,796 |
12,416 |
11,661 |
Income statement ratios |
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EBITDA margin |
32% |
29% |
27% |
25% |
25% |
EBIT margin |
25% |
22% |
20% |
19% |
19% |
HEPS growth |
-61% |
432% |
38% |
-3% |
-6% |
Dividend payout ratio on headline earnings |
327% |
41% |
80% |
72% |
66% |
Input assumptions |
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ZAR/$ |
13.31 |
13.24 |
14.28 |
14.40 |
14.49 |
Iron ore fines (62% Fe, CIF China), $/t |
71 |
66 |
88 |
85 |
78 |
Thermal coal benchmark, $/t |
85 |
98 |
85 |
84 |
84 |
Export realisations, $/t |
69 |
77 |
67 |
69 |
73 |
Required breakeven price |
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Export coal breakeven price, $/t |
77 |
82 |
75 |
72 |
72 |
Kumba Iron Ore breakeven price, $/t |
40 |
35 |
32 |
41 |
39 |
Sales volumes, kt |
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Eskom coal - commercial |
15,151 |
12,361 |
14,961 |
17,408 |
15,700 |
GMEP Eskom |
8,500 |
12,500 |
12,500 |
12,500 |
12,500 |
Other domestic coal |
5,325 |
4,684 |
4,618 |
2,922 |
3,300 |
Export coal |
7,612 |
7,965 |
9,011 |
13,576 |
13,000 |
Iron ore - Sishen Iron Ore Company |
8,979 |
8,652 |
8,790 |
8,960 |
8,900 |
Copper equivalent volumes, kt |
537 |
464 |
496 |
546 |
533 |
Volume growth |
-1.7% |
-13.5% |
6.8% |
10.2% |
-2.4% |
Contribution to proportionately consolidated FY19E attributable underlying EBITDA
Pigment & Sands |
Other |
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3% |
Coal |
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5% |
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46% |
Iron ore 46%
Dec-YE |
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2019E |
2020E |
2021E |
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2017 |
2018 |
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Balance sheet |
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Net operating assets |
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21,702 |
28,100 |
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31,047 |
33,013 |
34,178 |
Investment in associates |
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17,289 |
17,046 |
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16,660 |
16,552 |
16,729 |
Investments |
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319 |
-134 |
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-134 |
-134 |
-134 |
Equity |
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40,103 |
41,846 |
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45,467 |
47,838 |
50,444 |
Minority interest |
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-738 |
-701 |
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-685 |
-675 |
-671 |
Net debt |
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-55 |
3,867 |
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2,791 |
2,269 |
1,000 |
Balance sheet ratios |
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Gearing (net debt/(net debt+equity)) |
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-0.1% |
8.5% |
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5.8% |
4.5% |
1.9% |
Net debt to EBITDA (<1.5x) |
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0.0x |
0.4x |
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0.2x |
0.2x |
0.1x |
RoCE |
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25.7% |
21.4% |
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22.8% |
20.8% |
18.8% |
RoIC |
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18.4% |
15.3% |
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19.3% |
17.0% |
13.5% |
RoE |
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4.1% |
16.4% |
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21.2% |
19.3% |
17.2% |
Cash flow statement |
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Operating cash flow |
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7,067 |
8,367 |
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11,045 |
12,017 |
10,097 |
Capex (net of disposals) |
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-3,921 |
-5,790 |
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-6,447 |
-4,942 |
-3,142 |
Other cash flows |
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2,233 |
-1,540 |
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2,100 |
0 |
0 |
FCF |
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5,379 |
1,037 |
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6,698 |
7,075 |
6,955 |
Equity shareholders' cash |
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5,110 |
1,561 |
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6,708 |
7,138 |
7,098 |
Dividends and share buy-backs |
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-3,715 |
-5,483 |
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-5,632 |
-6,616 |
-5,829 |
Excess cash |
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1,395 |
-3,922 |
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1,076 |
522 |
1,269 |
Cash flow ratios |
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Working capital days |
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21 |
23 |
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21 |
20 |
21 |
Capex/EBITDA |
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54.4% |
79.5% |
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90.2% |
59.8% |
37.9% |
FCF yield |
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18.6% |
2.8% |
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15.5% |
16.5% |
16.7% |
Cash conversion |
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3.3x |
0.2x |
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0.7x |
0.8x |
0.8x |
Equity shareholders' yield |
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17.2% |
4.6% |
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16.3% |
17.3% |
17.2% |
Valuation ratios |
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P/E multiple |
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26.2x |
6.6x |
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5.8x |
6.0x |
6.4x |
Dividend yield |
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16.6% |
8.0% |
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12.6% |
11.0% |
9.4% |
EV/EBITDA |
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3.3x |
3.8x |
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3.9x |
3.2x |
3.4x |
P/B |
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1.0x |
1.0x |
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1.2x |
1.1x |
1.1x |
NAV per share, ZAR |
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121 |
129 |
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139 |
146 |
153 |
Valuation |
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Calculation of target price |
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ZARmn |
ZAR/sh |
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Coal at DCF fair value |
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29,302 |
87 |
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Sishen Iron Ore Company at DCF fair value |
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24,837 |
74 |
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Tronox at market value |
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6,479 |
19 |
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50% interest in Moranbah South at $100mn |
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1,440 |
4 |
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Other at DCF fair value |
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2,842 |
8 |
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Attributable enterprise value |
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64,900 |
192 |
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Investments as at 31 December 2018 |
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-134 |
-0 |
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Net debt as at 31 December 2018 |
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-3,867 |
-11 |
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Share issues (buy-backs) during 2019E |
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0 |
0 |
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Other |
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996 |
3 |
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Equity value |
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61,895 |
184 |
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Plus: one-year forward equity shareholders' cash |
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20 |
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Less: dividends paid |
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-18 |
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One-year forward equity value |
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186 |
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TP, rounded to |
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190 |
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Share price on 26/3/2019 |
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164 |
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Expected share price return |
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15.7% |
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Plus: expected dividend yield |
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10.7% |
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Total implied one-year return |
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26.5% |
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Share price range, ZAR: |
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12-month high on 19/3/2019 |
175 |
12-month low on 4/4/2018 |
103 |
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Price move since high |
-5.9% |
Price move since low |
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60.1% |
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Calculation of discount rate |
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WACC |
14.7% |
Cost of debt |
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10.0% |
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Risk-free rate |
9.0% |
Tax rate |
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28% |
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Equity risk premium |
5.0% |
After-tax cost of debt |
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7.2% |
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Beta |
1.30 |
Debt weighting |
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10% |
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Cost of equity |
15.5% |
Terminal growth rate |
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3% |
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Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
69
