Growth in December Quarter Export Price Index Indicate Opportunities for Materials Sector

Company Overview

Company Overview: South32 Limited (ASX: S32) is a diversified mining and metal production 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. Iluka Resources Limited (ASX: ILU) is an Australian critical minerals corporation. The company produces zircon, high-grade titanium dioxide feedstocks, rutile, and synthetic rutile. Its mining and processing operations are based in South and Western Australia. Kalkine’s Sector Report covers the Investment Summary, Sector Overview & Supporting Catalysts, Data Insights & Analysis, Financial Metrics, Financial Commentary, Risks, Outlook, Technical Analysis along with the Valuation, Target Price, and Recommendation on selected stocks.

Investment Summary

Sector Overview and Supporting Catalysts

Data Insights and Analysis

Index Performance

Key Drivers versus Key Constraints

Investment theme and stocks under discussion (S32, ILU)

After understanding the sector, let us now look at two companies from the Materials space listed on the ASX. The price potential of the companies under discussion have been analysed based on the EV/Sales valuation multiple method.

1. ASX: S32 (South32 Limited)

(Recommendation: Buy, Potential Upside: Low Double-Digit, Mcap: AUD 14.90bn)

S32 is a diversified mining and metal production 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.

The stock has witnessed a correction of ~18.25% in last 6 months, and over the last one year, it has declined by ~32.91%. The stock has a 52-week low and 52-week high of AUD 2.990 and AUD 4.820, respectively, and is currently trading below the 52-week high-low average. S32 was last covered in a report dated ‘07 November 2024’.

2) ASX: ILU (Iluka Resources Limited)

(Recommendation: Buy, Potential Upside Low Double-Digit, Mcap: AUD 3.01bn)

 ILU is an Australian critical minerals corporation. The company produces zircon, high-grade titanium dioxide feedstocks, rutile, and synthetic rutile. Its mining and processing operations are based in South and Western Australia.

On 21 February 2024, ILU expects to release FY23 results.

The stock has witnessed a dip of ~27.97% in last 6 months, and over the last 9 months, it has declined by ~36.69%. The stock has a 52-week low and 52-week high of AUD 6.240 and AUD 12.080, respectively and is currently trading below the 52-week high-low average. ILU was last covered in a report dated ’24 January 2024’.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an Indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 8 February 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.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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