South32 Ltd (ASX: S32)

South32 Ltd (ASX: S32) is a globally diversified mining and metals company headquartered in Australia. It focuses on the extraction and production of a range of minerals, including aluminum, copper, silver, nickel, and manganese.

Recommendation Rationale – SELL at AUD 3.350

• Trading Around Resistance: S32’s share price is hovering around the ‘Resistance 1’ level recommended on 29 August 2024; thus, share price can face resistance at the current levels.
• Technical Standpoint: Given that the 14-day RSI is currently around 68.98 level, indicating it is approaching the overbought zone and can face retracement in the short term.
• Overvalued Multiples: On a forward 12-month basis, EV/EBITDA and Price/Earnings multiples are higher than the average of Metals & Mining industry.
• Commodity Price Volatility: The company's profitability is closely tied to fluctuating commodity prices, which can lead to financial instability during downturns.
• Decreased Profitability: The company reported a loss after tax attributable to members of US$203 million for FY24, a decline from the previous year's loss of US$173 million. This reflects ongoing challenges in achieving profitability. Underlying earnings fell sharply by 59%, from US$916 million in FY23 to US$380 million in FY24, indicating substantial operational and market difficulties.

S32 Daily Chart

 (Source: REFINITIV; Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY Jun'25E) (Illustrative)

S32 is likely to trade at a slight premium on the back enhanced capital management program, portfolio simplification through sale of Illawarra Metallurgical Coal, and production increases in several areas. The following peers have been considered for conducting valuation: Sandfire Resources Ltd (ASX: SFR), IGO Ltd (ASX: IGO), and BlueScope Steel Ltd (ASX: BSL).

Given its current trading levels, market uncertainties, and risks associated, the share price can witness resistance at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 3.350, as of 24 September 2024 at 3:06 PM AEST.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. 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 24 September 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: Dividend Yield may vary as per the stock price movement. 

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.