Goldman Sachs names 3 reasons why the South32 share price is a bargain buy

Here’s why South32 shares could be great value for investors…
The post Goldman Sachs names 3 reasons why the South32 share price is a bargain buy appeared first on The Motley Fool Australia. –

The South32 Ltd (ASX: S32) share price was out of form on Tuesday.

The mining giant’s shares ended the day 8% lower at $4.46.

Why did the South32 share price tumble?

Investors were selling down the South32 share price yesterday amid broad weakness in the resources sector and a negative reaction to the company’s quarterly update.

The latter revealed that South32 has increased its cost guidance to reflect higher input costs, royalties, and foreign exchange.

Is this a buying opportunity?

According to a note out of Goldman Sachs, its analysts remain very positive on the South32 share price and appear to see yesterday’s selloff as a buying opportunity.

The broker has retained its conviction buy rating with a trimmed price target of $5.70.

Based on the current South32 share price, this implies potential upside of 28% for investors over the next 12 months.

In addition, Goldman is forecasting a fully franked 8% dividend yield in FY 2022 and then 13% in FY 2023 and FY 2024.

Why is Goldman bullish?

Goldman Sachs has listed three key reasons why it is bullish on the South32 share price. It explained:

Valuation: The stock is trading at c. 0.95x NAV (A$5.10/sh) including the completion of the acquisition of a 45% stake in the Sierra Gorda copper mine in Chile.

Strong FCF outlook: We forecast a FCF yield of c. 18% in FY23 (over 25% at spot), driven mostly by exposure to base metal price momentum (aluminium & alumina c. 50% of FY23 EBITDA, copper c. 10%, zinc/nickel c. 20%), met coal (c. 15% of EBITDA), a c. 30% or c. 280ktpa increase in aluminium production over the next 18 months from the Alumar restart & a c. 17% increase in Mozal stake, creep in nickel from Cerro Matoso and lead/zinc/silver from Cannington, and uplift from the Sierra Gorda acquisition.

Increased capital returns: We assume the buyback continues to be extended (at ~US$200mn p.a) and assume S32 resets its balance sheet metrics (we think targeting US$0-800mn net debt through the cycle based on our view of suitable balance sheet leverage) pays out 60% of earnings (40% ordinary, 30% special dividend component) with the FY22 result. On our estimates, S32 is on a dividend yield of c. 8-13% in FY22-FY24.”

All in all, this could make South32 a top option if you’re looking for exposure to the resources sector.

The post Goldman Sachs names 3 reasons why the South32 share price is a bargain buy appeared first on The Motley Fool Australia.

Should you invest $1,000 in South32 right now?

Before you consider South32, you’ll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and South32 wasn’t one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

More reading

5 things to watch on the ASX 200 on Wednesday

Why Chalice Mining, EML Payments, Mineral Resources, and South32 shares are tumbling

South32 share price sinks 8% amid rising cost guidance

2 ASX 200 dividend shares to buy according to brokers

Is South32 an ASX dividend stock?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US & HK* Trades. Click Here!