- •Contents
- •Revisions to our forecasts, TPs and ratings
- •Investment stance
- •Capital cycle favours rising returns
- •Comfortable balance sheets and supportive dividend potential
- •Value relative to other stocks
- •Yield potential through the cycle
- •Mid-cycle cash generation offers supportive yields
- •Where to hide if you are bearish
- •What to buy if you are bullish
- •Limited lives weighing down IRR
- •Yields should compensate for limited lives
- •Positive earnings momentum continues to support share prices
- •Commodity price revisions
- •Commodity section
- •Commodity section
- •Preference for base metals over steelmaking materials
- •Earnings revisions
- •Risks and catalysts
- •Peer comp charts
- •Commodity price and exchange rate forecasts
- •Important publications
- •African Rainbow Minerals
- •Alrosa
- •Anglo American
- •Assore
- •Exxaro
- •Glencore
- •Kumba Iron ore
- •NorNickel
- •Rio Tinto
- •Rusal
- •Vale
- •Gold Fields
- •Harmony
- •Polymetal
- •Anglo American Platinum
- •Lonmin
- •Northam
- •Royal Bafokeng Platinum
- •Sasol
- •Disclosures appendix
vk.com/id446425943
Vale – HOLD
Renaissance Capital
1 April 2019
Metals & Mining
Figure 123: Vale, $mn (unless otherwise noted)
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Vale |
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VALE.N |
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Target price, $: |
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15.5 |
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Market capitalisation, $mn: |
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67,191 |
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Last price, $: |
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13.0 |
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Enterprise value, $mn: |
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87,488 |
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Potential 12-month return: |
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19.0% |
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Dec-YE |
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2016 |
2017 |
2018E |
2019E |
2020E |
Dec-YE |
2016 |
2017 |
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2018E |
2019E |
2020E |
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Income statement |
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Balance sheet |
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Revenue |
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29,334 |
35,713 |
37,008 |
42,080 |
43,839 |
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Net operating assets |
66,066 |
62,915 |
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53,048 |
56,227 |
57,988 |
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Adjusted EBITDA |
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12,181 |
15,337 |
17,022 |
22,132 |
20,544 |
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Investments |
18 |
18 |
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6 |
6 |
7 |
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Adjusted EBIT |
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8,267 |
10,873 |
13,498 |
18,683 |
16,823 |
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Equity |
39,042 |
43,458 |
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43,341 |
52,017 |
59,578 |
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Net interest |
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1,966 |
-3,019 |
-6,019 |
-2,117 |
-1,748 |
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Minority interest |
1,982 |
1,314 |
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860 |
868 |
876 |
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Taxation |
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-2,781 |
-830 |
-1,469 |
-3,224 |
-2,811 |
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Net debt (target: $10bn) |
25,060 |
18,161 |
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8,853 |
3,348 |
-2,459 |
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Minority interest in profit |
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6 |
-14 |
-1 |
-40 |
-40 |
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Net profit for the year |
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5,277 |
6,935 |
5,669 |
8,676 |
7,560 |
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Balance sheet ratios |
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Underlying earnings |
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4,968 |
7,188 |
7,993 |
12,326 |
11,210 |
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Gearing * |
31.4% |
22.4% |
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11.1% |
4.4% |
-2.9% |
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Underlying EPS, $ |
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0.96 |
1.39 |
1.54 |
2.39 |
2.17 |
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Net debt to EBITDA |
2.1x |
1.2x |
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0.5x |
0.2x |
-0.1x |
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RoCE |
13.1% |
16.4% |
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22.0% |
32.2% |
27.8% |
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Thomson Reuters consensus EPS, $ |
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1.28 |
2.03 |
1.63 |
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RoIC (after tax) |
12.6% |
19.8% |
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15.4% |
22.1% |
19.3% |
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DPS declared, $ |
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0.27 |
0.28 |
0.40 |
0.00 |
0.00 |
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RoE |
13.7% |
17.4% |
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18.4% |
25.9% |
20.1% |
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Adjusted EBIT |
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Cash flow statement |
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Ferrous Minerals |
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8,747 |
11,497 |
13,133 |
18,121 |
15,426 |
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Operating cash flow |
10,030 |
16,819 |
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12,802 |
16,398 |
15,985 |
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EBIT margin |
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43% |
46% |
46% |
55% |
47% |
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Capex less disposals |
-5,480 |
-4,154 |
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-2,353 |
-5,623 |
-5,185 |
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Coal |
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-244 |
-25 |
-5 |
88 |
168 |
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Other cash flows |
-987 |
-1,825 |
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3,001 |
-3,650 |
-3,650 |
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EBIT margin |
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-29% |
-2% |
0% |
5% |
7% |
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FCF |
3,563 |
10,840 |
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13,450 |
7,125 |
7,150 |
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Base metals |
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36 |
501 |
1,012 |
962 |
1,733 |
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Equity shareholders' cash |
702 |
8,574 |
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12,462 |
5,505 |
5,807 |
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EBIT margin |
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1% |
7% |
15% |
14% |
22% |
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Dividends and share buy-backs |
-500 |
-1,675 |
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-3,155 |
0 |
0 |
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Fertiliser nutrients |
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-138 |
-885 |
-109 |
0 |
0 |
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Excess cash |
202 |
6,899 |
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9,308 |
5,505 |
5,807 |
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EBIT margin |
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-7% |
-51% |
-122% |
n/a |
n/a |
Cash flow ratios |
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Others and logistics |
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-134 |
-215 |
-534 |
-488 |
-505 |
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EBIT margin |
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-84% |
-54% |
-168% |
-127% |
-126% |
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Working capital days |
0 |
7 |
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10 |
11 |
9 |
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Adjusted EBIT - Group production |
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8,267 |
10,873 |
13,498 |
18,683 |
16,823 |
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Capex/EBITDA |
45.0% |
27.1% |
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13.8% |
25.4% |
25.2% |
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Income statement ratios |
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FCF yield |
6.6% |
15.4% |
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16.8% |
10.0% |
10.9% |
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Equity shareholders' yield |
2.6% |
16.9% |
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17.7% |
8.2% |
8.6% |
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EBITDA margin |
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41.5% |
42.9% |
46.0% |
52.6% |
46.9% |
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Cash conversion |
0.1x |
1.2x |
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1.6x |
0.4x |
0.5x |
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EBIT margin |
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28.2% |
30.4% |
36.5% |
44.4% |
38.4% |
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Valuation |
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EPS growth |
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393% |
44% |
11% |
55% |
-9% |
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Dividend payout ratio |
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29% |
20% |
26% |
0% |
0% |
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SoTP valuation and calculation of target price |
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$mn |
$ |
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Input assumptions |
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Ferrous minerals |
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95,704 |
18.5 |
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Coal |
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1,004 |
0.2 |
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Iron ore fines (62%Fe,CIF China), $/t |
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58 |
71 |
66 |
88 |
85 |
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Base metals |
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9,756 |
1.9 |
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Brazil to China freight charge, $/t |
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9 |
15 |
18 |
17 |
22 |
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Fertiliser nutrients |
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1,575 |
0.3 |
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Nickel, $/t |
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9,599 |
10,404 |
13,130 |
12,762 |
14,805 |
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Others and logistics |
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-7,497 |
-1.5 |
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Copper, $/t |
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4,867 |
6,170 |
6,532 |
6,400 |
6,500 |
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Total enterprise value |
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100,541 |
19.5 |
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Thermal coal, $/t |
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64 |
85 |
98 |
85 |
84 |
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Net debt as at latest year end |
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-18,161 |
-3.5 |
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Hard coking coal, $/t |
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144 |
188 |
206 |
187 |
170 |
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Cash used in share buy-backs |
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-497 |
-0.1 |
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$/BRL |
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3.49 |
3.19 |
3.65 |
3.68 |
3.47 |
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Other investments |
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18 |
0.0 |
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Minority interest (DCF value) |
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-2,136 |
-0.4 |
Required breakeven price |
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Equity value as at 27/3/2019 |
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79,765 |
15.5 |
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Iron ore, $/t |
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27 |
32 |
25 |
23 |
35 |
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Rounded to |
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15.5 |
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Metallurgical coal, $/t |
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192 |
152 |
186 |
172 |
151 |
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Share price on 26/3/2019 |
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13.0 |
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Nickel, $/t |
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8,184 |
9,159 |
8,961 |
9,094 |
8,965 |
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Expected share price return |
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19.0% |
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Copper, $/t |
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2,898 |
2,345 |
3,385 |
3,449 |
3,027 |
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Plus: expected dividend yield |
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0.0% |
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Sales volumes |
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Total implied one-year return |
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19.0% |
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Iron ore, mnt |
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293 |
289 |
309 |
269 |
290 |
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Share price range, $: |
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Iron pellets, mnt |
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48 |
52 |
57 |
51 |
57 |
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12-month high on 3/10/2018 |
16.13 |
12-month low on 8/2/2019 |
10.89 |
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Nickel, kt |
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311 |
294 |
236 |
248 |
264 |
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Price move since high |
-19.3% |
Price move since low |
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19.6% |
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Copper, kt |
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430 |
424 |
385 |
430 |
440 |
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Attributable Cu eq volumes, kt |
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5,406 |
5,383 |
5,152 |
4,835 |
5,254 |
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Calculation of WACC |
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Volume growth |
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3.1% |
-0.4% |
-4.3% |
-6.2% |
8.7% |
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WACC |
13.5% |
Cost of debt |
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7.0% |
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Contribution to FY18E Adjusted EBITDA |
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Risk-free rate |
4.0% |
Tax rate |
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30% |
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Equity risk premium |
8.0% |
After-tax cost of debt |
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4.9% |
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Base metals |
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Beta |
1.30 |
Debt weighting |
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10% |
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Coal |
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Cost of equity |
14.4% |
Terminal growth rate |
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2.0% |
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14% |
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1% |
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Valuation ratios |
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Manganese |
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1% |
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Dec-YE |
2016 |
2017 |
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2018E |
2019E |
2020E |
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P/E multiple |
5.3x |
7.1x |
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8.9x |
5.5x |
6.0x |
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Dividend yield |
5.3% |
2.9% |
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2.9% |
0.0% |
0.0% |
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EV/EBITDA |
4.4x |
4.6x |
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4.7x |
3.2x |
3.2x |
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Pellets |
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P/B |
0.7x |
1.2x |
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1.6x |
1.3x |
1.1x |
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NAV per share, $ |
7.6 |
8.4 |
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8.4 |
10.1 |
11.5 |
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20% |
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Iron ore |
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64% |
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Dividend policy: Minimum payment of 30% of EBITDA less sustaining capex. |
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* Gearing defined as net debt/(net debt +equity)
Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates
77
vk.com/id446425943
AngloGold Ashanti – SELL
Renaissance Capital
1 April 2019
Metals & Mining
Figure 124: AngloGold Ashanti, $mn (unless otherwise noted)
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AngloGold Ashanti |
ANGJ.J |
Target price, ZAR: |
115 |
Market capitalisation, $mn: |
5,940 |
Share price, ZAR: |
205 |
Enterprise value, $mn: |
7,692 |
Potential 12-month return: |
-43.0% |
Dec-YE |
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2017 |
2018 |
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2019E |
2020E |
2021E |
Income statement |
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Revenue |
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4,809 |
4,386 |
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4,741 |
5,018 |
4,874 |
Adjusted EBITDA |
1,757 |
1,669 |
|
2,010 |
1,971 |
1,791 |
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Adjusted EBIT |
797 |
874 |
|
1,174 |
1,075 |
902 |
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Other items |
|
-696 |
-443 |
|
-290 |
-259 |
-259 |
Net interest |
|
-163 |
-179 |
|
-103 |
-62 |
-35 |
Taxation |
|
-84 |
-137 |
|
-234 |
-226 |
-182 |
Minority interest in profit |
-20 |
-17 |
|
-21 |
-22 |
-19 |
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Net profit for the year |
-164 |
98 |
|
526 |
507 |
406 |
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Headline earnings |
27 |
220 |
|
526 |
507 |
406 |
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Headline EPS, USc |
6 |
53 |
|
126 |
122 |
98 |
|
Thomson Reuters consensus HEPS, USc |
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|
101 |
111 |
111 |
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DPS declared, USc |
5 |
7 |
|
15 |
12 |
11 |
|
Adjusted EBIT |
-3 |
21 |
|
116 |
98 |
71 |
|
South Africa |
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EBIT margin |
0% |
3% |
|
20% |
17% |
12% |
|
Continental Africa |
386 |
380 |
|
569 |
580 |
533 |
|
EBIT margin |
20% |
19% |
|
25% |
23% |
22% |
|
Australasia |
|
159 |
160 |
|
269 |
233 |
187 |
EBIT margin |
22% |
21% |
|
29% |
25% |
21% |
|
Americas |
|
253 |
310 |
|
232 |
178 |
125 |
EBIT margin |
23% |
30% |
|
24% |
18% |
12% |
|
Other |
|
2 |
3 |
|
-12 |
-14 |
-14 |
Adjusted EBIT |
797 |
874 |
|
1,174 |
1,075 |
902 |
|
Income statement ratios |
|
|
|
|
|
|
|
EBITDA margin |
37% |
38% |
|
42% |
39% |
37% |
|
EBIT margin |
17% |
20% |
|
25% |
21% |
18% |
|
HEPS Growth |
-78% |
783% |
|
138% |
-4% |
-20% |
|
Dividend payout ratio |
86% |
13% |
|
12% |
10% |
12% |
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Input assumptions |
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Gold, $/oz |
|
1,258 |
1,269 |
|
1,350 |
1,337 |
1,311 |
ZAR/$ |
|
13.31 |
13.24 |
|
14.28 |
14.40 |
14.49 |
$/AUD |
|
1.30 |
1.34 |
|
1.37 |
1.28 |
1.25 |
$/BRL |
|
3.19 |
3.65 |
|
3.68 |
3.47 |
3.42 |
$/ARS |
|
16.56 |
28.09 |
|
36.04 |
35.79 |
36.33 |
Gold production volumes, koz |
|
|
|
|
|
|
|
South Africa |
lumes |
902 |
487 |
|
460 |
460 |
460 |
Continental Africa lumes |
1,453 |
1,512 |
|
1,610 |
1,808 |
1,772 |
|
Australasia |
lumes |
560 |
625 |
|
680 |
688 |
688 |
Americas |
lumes |
840 |
776 |
|
695 |
728 |
728 |
Total lumes |
3,755 |
3,400 |
|
3,445 |
3,684 |
3,648 |
|
Volume growth |
3.5% |
-9.5% |
|
1.3% |
6.9% |
-1.0% |
|
Calculated breakeven price, $/oz |
|
|
|
|
|
|
|
South Africa breakeven |
1,261 |
1,210 |
|
1,084 |
1,111 |
1,146 |
|
Continental Africa breakeven |
929 |
893 |
|
884 |
908 |
908 |
|
Australasia breakeven |
1,021 |
1,016 |
|
891 |
949 |
994 |
|
Americas breakeven |
927 |
863 |
|
1,011 |
1,081 |
1,127 |
|
Group breakeven |
1,083 |
1,028 |
|
1,016 |
1,042 |
1,066 |
|
Contribution to FY19E underlying EBITDA |
|
|
|
|
|
||
|
|
Corporate and |
|
South Africa |
|
|
|
|
Americas |
other |
|
|
|
||
|
-2% |
|
9% |
|
|
||
|
21% |
|
|
|
|
|
|
Australasia
22%
Continental Africa
48%
Dec-YE |
|
2017 |
2018 |
|
2019E |
2020E |
2021E |
Balance sheet |
|
|
|
|
|
|
|
Net operating assets |
|
5,506 |
5,029 |
|
5,101 |
4,958 |
4,775 |
Investments, net of rehab provision |
|
-801 |
-680 |
|
-680 |
-680 |
-680 |
Equity |
|
2,663 |
2,652 |
|
3,149 |
3,594 |
3,951 |
Minority interest |
|
41 |
42 |
|
42 |
42 |
42 |
Net debt |
|
2,001 |
1,655 |
|
1,231 |
642 |
102 |
Balance sheet ratios |
|
|
|
|
|
|
|
Gearing (net debt/(net debt+equity)) |
|
42.9% |
38.4% |
|
28.1% |
15.2% |
2.5% |
Net debt to EBITDA |
|
1.1x |
1.0x |
|
0.6x |
0.3x |
0.1x |
RoCE |
|
13.3% |
15.3% |
|
21.4% |
19.7% |
17.1% |
RoIC (after tax) |
|
-3.6% |
3.2% |
|
11.5% |
10.3% |
8.2% |
RoE |
|
1.0% |
8.3% |
|
18.1% |
15.0% |
10.8% |
Cash flow statement |
|
|
|
|
|
|
|
Operating cash flow |
|
1,432 |
1,378 |
|
1,796 |
1,742 |
1,580 |
Capex (net of disposals) |
|
-952 |
-722 |
|
-959 |
-769 |
-688 |
Other cash flows |
|
-472 |
-43 |
|
-290 |
-259 |
-259 |
Free cash flow |
|
8 |
614 |
|
547 |
715 |
633 |
Equity shareholders' cash |
|
-44 |
367 |
|
454 |
650 |
589 |
Dividends and share buy-backs |
|
-41 |
-21 |
|
-29 |
-62 |
-49 |
Surplus (deficit) cash |
|
-85 |
346 |
|
424 |
588 |
540 |
Cash flow ratios |
|
|
|
|
|
|
|
Working capital turnover, days |
|
29 |
34 |
|
29 |
25 |
26 |
FCF yield |
|
0.1% |
11.0% |
|
7.6% |
10.8% |
10.4% |
Equity shareholders' yield |
|
-1.0% |
9.4% |
|
7.6% |
10.9% |
9.9% |
Capex/EBITDA |
|
54.2% |
43.3% |
|
47.7% |
39.0% |
38.4% |
Cash conversion |
|
-1.6x |
1.7x |
|
0.9x |
1.3x |
1.5x |
Valuation |
|
|
|
|
|
|
|
SoTP DCF fair value and calculation of TP |
|
|
|
|
$mn |
ZAR/sh |
|
South Africa |
|
|
|
|
1,174 |
40.6 |
|
Continental Africa |
|
|
|
|
4,694 |
162.3 |
|
Australasia |
|
|
|
|
1,232 |
42.6 |
|
Americas |
|
|
|
|
994 |
34.4 |
|
Corporate and other |
|
|
|
|
-2,342 |
-81.0 |
|
Operating value |
|
|
|
|
5,751 |
198.9 |
|
Financial instruments and rehab provision as at 31 December 2018 |
|
-680 |
-23.5 |
||||
Enterprise value |
|
|
|
|
5,071 |
175.4 |
|
Net debt as at 31 December 2018 |
|
|
|
|
-1,655 |
-57.2 |
|
Minority interest |
|
|
|
|
-97 |
-3.4 |
|
Cash used in share buy-backs during 2019E |
|
|
|
|
0 |
0.0 |
|
Equity value |
|
|
|
|
3,319 |
114.8 |
|
Rounded to |
|
|
|
|
|
115.0 |
|
Share price on 26/3/2019 |
|
|
|
|
|
205.3 |
|
Expected share price return |
|
|
|
|
|
-44.0% |
|
Plus: expected dividend yield |
|
|
|
|
|
1.0% |
|
Total implied one-year return |
|
|
|
|
|
-43.0% |
|
Share price range, ZAR: |
|
|
|
|
|
|
|
12-month high on 20-2-2019 |
223 |
12-month low on 23-5-2018 |
100 |
||||
Price move since high |
-7.9% |
Price move since low |
|
104.9% |
|||
Calculation of WACC |
|
|
|
|
|
|
|
WACC |
7.4% |
Cost of debt |
|
|
5.0% |
||
Risk-free rate |
4.0% |
Tax rate |
|
|
30% |
||
Equity risk premium |
5.0% After-tax cost of debt |
|
1.1% |
||||
Beta |
1.00 |
Debt weighting |
|
30% |
|||
Cost of equity |
9.0% |
Terminal growth rate |
|
2.0% |
|||
Valuation ratios |
|
|
|
|
|
|
|
Dec-YE |
|
2017 |
2018 |
|
2019E |
2020E |
2021E |
P/E multiple |
|
177.4x |
17.6x |
|
11.3x |
11.7x |
14.6x |
Dividend yield |
|
0.5% |
0.7% |
|
1.0% |
0.8% |
0.8% |
EV/EBITDA |
|
3.7x |
3.3x |
|
3.6x |
3.4x |
3.4x |
P/B |
|
1.7x |
1.5x |
|
1.9x |
1.7x |
1.5x |
NAV per share, $ |
|
6.4 |
6.4 |
|
7.6 |
8.6 |
9.5 |
NAV per share, ZAR |
|
85 |
84 |
|
108 |
124 |
138 |
Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates
78