South32 Limited 

South32 Limited (LSE: S32) is an LSE index-listed is a mining and metals company. Its segments include Worsley Alumina, Brazil Alumina, Brazil Aluminium, Hillside Aluminium, Mozal Aluminium, Sierra Gorda, Cannington, Hermosa, Cerro Matoso, Illawarra Metallurgical Coal, Australia Manganese and South Africa Manganese. This Report covers the Investment Highlights, Conclusion, and Recommendation on the stock.

Investment Rationale – Sell at GBX 187.20

• Resistance near Current levels: S32’s stock price has approached the Resistance (R2) stated in the previous report on 29 November 2023, and might witness some sell-off from the current levels. Considering the market conditions and the price action, it is prudent to exit the stock, as the prices might pull back from these levels.
• Sluggish Profitability Margins: In FY23, the Gross margin of S32 was 59.8% against 73.3% in FY22, and the EBITDA margin declined to 23.2% in the reported period (FY23) as compared to 44.7% in FY22. Also, the net margin slipped to negative 2.3% in FY23 versus 28.8% in FY22.
• Declining liquidity ratios: The group’s quick ratio for FY23 was reported at 1.37x, lower than 1.72x during FY22. Also, the S32’s current ratio slipped to 2.08x during the reported period versus 2.24x in the previous reported period.
• Expensive Valuation: The stock of S32 is currently offered at 11.9x on Price/ Earnings-based relative valuation (NTM) as compared to the industry (Basic Materials) median of 5.5x. On Price/ Cash flow-based relative valuation (NTM), the stock is valued at 6.1x which is higher than the industry median of 4.5x.

Share Price Chart  

Conclusion

Based on the notional gains, macroeconomic challenges, and price action stance, a "SELL" recommendation on South32 Limited (LSE: S32) has been given at the current market price of GBX 187.20 (as of 11 January 2024, 08:45 AM GMT).

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance level is 11 January 2024.  The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and/or technical analysis taking into consideration both short-term and long-term scenario.

Note 5: ‘Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.’

Note 6: Dividend Yield may vary as per the stock price movement.