- •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
Sasol – BUY
Renaissance Capital
1 April 2019
Metals & Mining
Figure 135: Sasol, ZARmn (unless otherwise noted)
|
|
|
|
Sasol |
SOLJ.J |
Target price, ZAR: |
510 |
Market capitalisation, ZARmn: |
279,251 |
Share price, ZAR: |
445 |
Enterprise value, ZARmn: |
379,235 |
Potential 12-month return: |
18.3% |
Jun-YE |
|
2017 |
2018 |
2019E |
2020E |
2021E |
Income statement |
|
|
|
|
|
|
Revenue |
|
172,407 |
181,461 |
206,545 |
242,791 |
267,473 |
Underlying EBITDA |
|
46,556 |
50,970 |
51,867 |
70,866 |
80,769 |
Underlying EBIT |
|
30,352 |
34,545 |
33,659 |
49,273 |
58,011 |
Equity accounted income |
|
1,071 |
1,443 |
2,038 |
2,199 |
2,037 |
Net interest |
|
-1,697 |
-2,043 |
-2,510 |
-9,577 |
-9,084 |
Taxation |
|
-8,495 |
-5,558 |
-9,135 |
-10,769 |
-12,940 |
Minority interest in profit |
|
-1,139 |
-1,417 |
-2,069 |
-1,971 |
-2,031 |
Net income |
|
20,374 |
8,729 |
24,054 |
28,657 |
35,993 |
Headline earnings |
|
21,465 |
16,798 |
23,638 |
28,657 |
35,993 |
Headline EPS, ZAR |
|
35.2 |
27.4 |
38.3 |
46.2 |
57.9 |
Thomson Reuters consensus HEPS, ZAc |
|
|
40.3 |
49.8 |
56.2 |
|
DPS declared, ZAR |
|
12.6 |
12.9 |
12.8 |
16.9 |
21.0 |
Underlying EBIT |
|
3,753 |
5,383 |
6,358 |
8,027 |
8,427 |
Mining |
|
|||||
EBIT margin |
|
20% |
27% |
30% |
34% |
34% |
E&PI |
|
588 |
621 |
1,454 |
1,430 |
1,753 |
EBIT margin |
|
14% |
15% |
27% |
25% |
27% |
Energy |
|
12,717 |
14,184 |
19,308 |
18,802 |
16,399 |
EBIT margin |
|
20% |
20% |
23% |
22% |
20% |
Base chemicals |
|
5,276 |
4,868 |
3,249 |
4,408 |
7,360 |
EBIT margin |
|
14% |
11% |
7% |
9% |
13% |
Performance Chemicals |
|
9,477 |
8,591 |
9,181 |
11,219 |
11,832 |
EBIT margin |
|
14% |
13% |
12% |
13% |
13% |
Lake Charles Chemical project |
|
0 |
0 |
-4,272 |
6,156 |
13,040 |
EBIT margin |
|
- |
- |
-248% |
28% |
39% |
Group functions |
|
-1,459 |
898 |
-1,619 |
-769 |
-800 |
Underlying EBIT |
|
30,352 |
34,545 |
33,659 |
49,273 |
58,011 |
Income statement ratios |
|
|
|
|
|
|
Underlying EBITDA margin |
|
27% |
28% |
25% |
29% |
30% |
EBIT margin |
|
18% |
19% |
16% |
20% |
22% |
HEPS Growth |
|
-15% |
-22% |
39% |
21% |
25% |
Dividend payout ratio |
|
36% |
47% |
33% |
37% |
36% |
Input assumptions |
|
|
|
|
|
|
Brent crude oil, $/bbl |
|
51 |
64 |
68 |
63 |
61 |
Henry Hub (US) gas, $/MMBtu |
|
2.97 |
2.93 |
3.26 |
3.48 |
3.85 |
Ethane (US), $/t |
|
168 |
196 |
262 |
320 |
410 |
Ethylene (US), $/t |
|
648 |
493 |
405 |
652 |
917 |
ZAR/$ |
|
13.60 |
12.85 |
14.18 |
14.40 |
14.41 |
External sales volumes |
|
|
|
|
|
|
Mining, mnt |
|
3.0 |
3.2 |
3.7 |
4.1 |
4.1 |
E&PI, MMboe |
|
8.1 |
7.1 |
7.2 |
8.9 |
11.3 |
Energy, MMboe |
|
69.5 |
67.9 |
68.3 |
70.4 |
70.4 |
Base chemicals, kt |
|
3,413 |
3,363 |
3,236 |
3,680 |
3,744 |
Performance Chemicals, kt |
|
3,540 |
2,760 |
2,763 |
2,880 |
2,880 |
IFRS boe eq. production, mmboe |
|
247 |
219 |
221 |
262 |
272 |
Volume growth |
|
3.1% |
-11.5% |
0.9% |
18.7% |
3.7% |
Performance |
LCCP |
|
Mining |
|
|
|
-4% |
|
|
|
|||
Chemicals |
|
14% |
|
|
||
|
|
|
|
|
||
22% |
|
|
|
|
E&PI |
|
|
|
|
|
|
|
|
|
|
|
|
|
5% |
|
Base chemicals |
Energy |
|
13% |
||
42% |
||
|
Jun-YE |
2017 |
2018 |
2019E |
2020E |
2021E |
Balance sheet |
|
|
|
|
|
Net operating assets |
284,594 |
334,432 |
380,965 |
400,269 |
405,857 |
Investments, net of rehab provision |
-10,850 |
-9,483 |
-7,527 |
-4,770 |
-3,559 |
Equity |
211,711 |
222,985 |
241,645 |
262,348 |
286,596 |
Minority interest |
5,523 |
5,623 |
6,559 |
7,248 |
7,959 |
Net debt |
54,707 |
94,361 |
123,584 |
124,252 |
106,092 |
Reported net debt |
56,510 |
96,341 |
125,235 |
125,903 |
107,743 |
Balance sheet ratios |
|
|
|
|
|
Gearing (net debt/(net debt+equity)) |
21.1% |
30.2% |
34.1% |
32.4% |
27.3% |
Net debt/equity |
26.7% |
43.2% |
51.8% |
48.0% |
37.6% |
Net debt to EBITDA |
1.2x |
1.9x |
2.4x |
1.8x |
1.3x |
RoCE |
10.2% |
10.3% |
8.8% |
11.9% |
13.5% |
RoIC (after tax) |
9.9% |
8.5% |
5.9% |
9.5% |
12.5% |
RoE |
10.3% |
7.7% |
10.2% |
11.4% |
13.1% |
Cash flow statement |
|
|
|
|
|
Operating cash flow |
42,765 |
37,749 |
42,909 |
52,239 |
66,509 |
Capex (net of disposals) |
-60,343 |
-53,384 |
-52,901 |
-33,442 |
-27,391 |
Other cash flows |
7,731 |
-12,514 |
-5,805 |
-498 |
0 |
Free cash flow |
-9,847 |
-28,149 |
-15,798 |
18,298 |
39,118 |
Equity shareholders' cash |
-18,244 |
-31,702 |
-20,660 |
7,286 |
29,904 |
Dividends and share buy-backs |
-8,628 |
-7,952 |
-8,563 |
-7,954 |
-11,744 |
Surplus (deficit) cash |
-26,872 |
-39,654 |
-29,223 |
-667 |
18,160 |
Cash flow ratios |
|
|
|
|
|
Free cash flow yield |
-3.3% |
-7.9% |
-3.9% |
4.5% |
10.0% |
Equity shareholders' yield |
-7.7% |
-12.4% |
-7.5% |
2.6% |
10.8% |
Capex/EBITDA |
129.6% |
104.7% |
102.0% |
47.2% |
33.9% |
Cash conversion |
-0.8x |
-1.9x |
-0.9x |
0.3x |
0.8x |
Valuation ratios |
|
|
|
|
|
P/E multiple |
11.0x |
15.3x |
11.6x |
9.6x |
7.7x |
Dividend yield |
3.3% |
3.1% |
2.9% |
3.8% |
4.7% |
EV/EBITDA |
6.4x |
7.0x |
7.8x |
5.8x |
4.8x |
P/B |
1.1x |
1.1x |
1.1x |
1.1x |
1.0x |
NAV per share, ZAR |
347 |
364 |
389 |
422 |
461 |
Valuation |
|
|
|
|
|
SoTP DCF fair value and calculation of target price |
|
ZARmn |
ZAR/sh |
||
Mining |
|
|
|
66,260 |
107 |
Exploration and production international |
|
|
|
6,867 |
11 |
Energy |
|
|
|
132,837 |
214 |
Base chemicals |
|
|
|
39,455 |
63 |
Performance Chemicals |
|
|
|
93,883 |
151 |
Lake Charles Chemicals project |
|
|
|
79,973 |
129 |
Group functions and equity accounted associates |
|
|
12,766 |
21 |
|
Operating value |
|
|
|
432,042 |
695 |
Financial instruments net of rehab provision as at 30 June 2018 |
|
-9,483 |
-15 |
||
Enterprise value |
|
|
|
422,559 |
680 |
Net cash (debt) as at 30 June 2018 |
|
|
|
-94,361 |
-152 |
Minority interest |
|
|
|
-5,623 |
-9 |
Cash used in share buy-backs during 2019E |
|
|
0 |
0 |
|
Khanyisa ESOP phase 2 dilution |
|
|
|
-6,500 |
-10 |
Equity value |
|
|
|
316,075 |
509 |
Rounded to |
|
|
|
|
510 |
Share price on 26/3/2019 |
|
|
|
|
445 |
Expected share price return |
|
|
|
|
14.7% |
Plus: expected dividend yield |
|
|
|
|
3.6% |
Total implied one-year return |
|
|
|
|
18.3% |
Share price range, ZAR: |
|
|
|
|
|
12-month high |
586 |
12-month low |
|
379 |
|
Price move since high |
-24.1% |
Price move since low |
|
17.2% |
|
Calculation of WACC |
|
|
|
|
|
WACC |
12.0% |
Cost of debt |
|
7.4% |
|
Risk-free rate |
9.0% |
Tax rate |
|
|
26% |
Equity risk premium |
5.0% |
After-tax cost of debt |
|
5.5% |
|
Beta |
1.30 |
Debt weighting |
|
35% |
|
Cost of equity |
15.5% |
Terminal growth rate |
|
4.0% |
|
Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates
89
vk.com/id446425943
Merafe Resources – BUY
Renaissance Capital
1 April 2019
Metals & Mining
Figure 136: Merafe Resources, ZARmn (unless otherwise noted)
|
|
|
|
Merafe Resources |
MERJ.J |
Target price, ZAR: |
1.50 |
Market capitalisation, ZARmn: |
3,590 |
Last price, ZAR: |
1.42 |
Enterprise value, ZARmn: |
3,319 |
Potential 12-month return: |
21.3% |
Dec-YE |
2017 |
2018 |
2019E |
2020E |
2021E |
Income statement |
|
|
|
|
|
Revenue |
5,889 |
5,606 |
6,122 |
6,754 |
7,339 |
Underlying EBITDA |
1,665 |
1,346 |
1,194 |
1,393 |
1,432 |
Underlying EBIT |
1,297 |
940 |
756 |
952 |
970 |
Net interest |
-13 |
4 |
40 |
84 |
87 |
Taxation |
-364 |
-261 |
-223 |
-290 |
-296 |
Once-off items |
-7 |
-0 |
0 |
0 |
0 |
Headline earnings |
914 |
683 |
573 |
746 |
761 |
Headline EPS, ZAc |
36 |
27 |
23 |
30 |
30 |
Headline EPS (Consensus), ZAc |
|
|
21 |
25 |
29 |
DPS declared, ZAc |
12 |
14 |
20 |
30 |
31 |
Dividend per share (Consensus), ZAc |
|
|
24 |
21 |
23 |
Income statement ratios |
|
|
|
|
|
EBITDA margin |
28% |
24% |
20% |
21% |
20% |
Underlying EBITDA, $/t |
334 |
273 |
209 |
246 |
244 |
EBIT margin |
22% |
17% |
12% |
14% |
13% |
HEPS growth |
72% |
-25% |
-16% |
30% |
2% |
Dividend payout ratio |
33% |
51% |
86% |
102% |
102% |
Input assumptions |
1.49 |
1.39 |
1.16 |
1.27 |
1.32 |
Ferrochrome, $/lb |
|||||
Ferrochrome, $/t |
3,291 |
3,067 |
2,560 |
2,797 |
2,908 |
Chrome ore, $/t |
247 |
202 |
186 |
198 |
204 |
$/ZAR |
13.31 |
13.24 |
14.28 |
14.40 |
14.49 |
Smelter utilisation rate |
82% |
84% |
86% |
85% |
85% |
Sales volumes, kt |
375 |
372 |
399 |
394 |
405 |
Ferrochrome, kt |
|||||
Volume growth |
-14% |
-1% |
7% |
-1% |
3% |
Chrome, kt |
322 |
248 |
260 |
257 |
257 |
Volume growth |
-13% |
-23% |
5% |
-1% |
0% |
Balance sheet |
|
|
|
|
|
Net operating assets |
3,976 |
4,623 |
4,455 |
4,591 |
4,711 |
Equity |
4,636 |
4,893 |
5,121 |
5,014 |
4,922 |
Net debt (cash) |
-660 |
-270 |
-666 |
-423 |
-211 |
Balance sheet ratios |
|
|
|
|
|
Gearing* |
-17% |
-6% |
-15% |
-9% |
-4% |
Net debt/EBITDA |
-0.4x |
-0.2x |
-0.6x |
-0.3x |
-0.1x |
RoCE |
26% |
17% |
13% |
17% |
17% |
RoIC (after tax) |
20% |
13% |
10% |
13% |
13% |
Dec-YE |
2017 |
2018 |
|
2019E |
2020E |
2021E |
|
Cash flow statement |
|
|
|
|
|
|
|
Operating cash flow |
1,362 |
446 |
|
1,156 |
1,002 |
1,039 |
|
Capex |
-404 |
-412 |
|
-444 |
-452 |
-460 |
|
Other - CF |
-27 |
-1 |
|
0 |
0 |
0 |
|
FCF |
958 |
33 |
|
712 |
550 |
579 |
|
Equity shareholders' cash |
949 |
36 |
|
741 |
610 |
641 |
|
Dividends |
-175 |
-426 |
|
-345 |
-854 |
-853 |
|
Share issues (buy-backs) |
0 |
0 |
|
0 |
0 |
0 |
|
Advances (repayments) of debt |
-389 |
-0 |
|
-12 |
0 |
0 |
|
Surplus (deficit) cash |
384 |
-390 |
|
384 |
-243 |
-212 |
|
Cash flow ratios |
109 |
157 |
|
134 |
130 |
127 |
|
Working capital days** |
|
|
|||||
Capex/EBITDA |
24% |
31% |
|
37% |
32% |
32% |
|
FCF yield |
27% |
1% |
|
22% |
16% |
15% |
|
Cash conversion ratio |
1.0x |
0.1x |
|
1.3x |
0.8x |
0.8x |
|
Equity shareholders' yield |
24% |
1% |
|
21% |
17% |
18% |
|
Valuation |
|
|
|
|
|
|
|
Calculation of target price (TP) |
|
|
|
|
ZARmn |
ZAR/share |
|
Equity value |
|
|
|
|
3,780 |
1.51 |
|
Rounded to |
|
|
|
|
|
1.50 |
|
Share price on 26-3-2019 |
|
|
|
|
|
1.42 |
|
Expected share price return |
|
|
|
|
|
5.6% |
|
Plus: expected dividend yield |
|
|
|
|
|
15.7% |
|
Total implied one-year return |
|
|
|
|
|
21.3% |
|
Share price range, ZAR: |
|
|
|
|
|
|
|
12-month high on 2-7-2018 |
1.74 12-month high on 4-2-2019 |
1.24 |
|
||||
Price move since high |
-18% Price move since low |
|
14.5% |
|
|||
Calculation of discount rate |
|
|
|
|
|
|
|
WACC |
16.2% |
Cost of debt |
|
|
10.0% |
|
|
Risk-free rate |
9.0% |
Tax rate |
|
|
28% |
|
|
Equity risk premium |
5.5% |
After-tax cost of debt |
|
7.2% |
|
||
Beta |
1.30 |
Debt weighting |
|
0% |
|
||
Cost of equity |
16.2% |
Terminal growth rate |
|
2.0% |
|
||
Valuation ratios |
|
|
|
|
|
|
|
Dec-YE, $mn |
2017 |
2018 |
|
2019E |
2020E |
2021E |
|
P/E multiple |
4.3x |
5.7x |
|
6.2x |
4.8x |
4.7x |
|
Dividend yield |
8% |
9% |
|
14% |
21% |
22% |
|
EV/EBITDA |
2.1x |
3.0x |
|
2.7x |
2.5x |
2.6x |
|
P/B |
0.8x |
0.8x |
|
0.7x |
0.7x |
0.7x |
|
NAV per share, ZAR |
1.85 |
1.95 |
|
2.04 |
2.00 |
1.96 |
|
*Gearing defined as net debt/(net debt +equity)
**Working capital days is defined as (working capital/revenue)*365
Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates
90