South32 - Dec-Q: What are the key takeaways? S32's Dec-Q is soft with reduced FY guidance at Mozal & Brazil alumina, adverse working capital, and higher tax rates to weigh on net debt & returns in 1HFY24. S32 expects to lift CuEq volumes in 2HFY24 (by +7%), but increasingly the market wants to see delivery against aspiration. Costs appear balanced with operational / cost out reviews under way. Earnings & FCF should improve materially in 2H FY24, due to the combination of improved markets (eg alumina, met coal, copper, manganese), expected operational stability at key assets (Worsley, IMC, Cannington, GEMCO), and the unwind of 1HFY24 working capital build. Following the Dec-Q update, we downgrade EPS 31% in FY24E, and revise our target to A$3.80/sh (A $4.00/sh prior); we retain a Buy rating with FCF yield to lift from ~1% in FY24E to ~7% in FY25E. The next catalyst is approval of Taylor (expected with 1H results on 15-Feb); we believe higher project capex is priced in. Source: UBS.
S32 Price at posting:
$3.28 Sentiment: Buy Disclosure: Not Held
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