South32’s strategy day did little to change Citi’s investment thesis, the only material variable being a forecast rise in FY23 and FY24 capital expenditure.
Management reports industry-wide costs are rising, but that does not alter S32’s position relative to peers.
Citi considers the company’s transformation to be successful and admires the alumina/aluminium business, the spinning out of ageing assets and the timing of the Sierra Gorda acquisition, which exposes the company toward green commodities.
Challenges remain but with the company trading at a discount to valuation and on low multiples relative to peers, Citi retains a Buy rating and $5.50 target price, while keeping a keen eye peeled to China’s near-term demand profile.
Target price is $5.50.Current Price is $4.64. Difference: $0.86 – (brackets indicate current price is over target). If S32 meets the Citi target it will return approximately 16% (excluding dividends, fees and charges – negative figures indicate an expected loss).