BHP Billiton’s thinking in spinning off South32 is straightforward, although the process of actually divesting its unwanted mining assets is anything but.
The idea is that offloading exposure to more problematic commodities, such as silver, aluminium and manganese, will leave the Australian miner free to concentrate on BHP’s core investments of iron ore, oil and gas, coal, copper and potash.
Similarly, relieved of the constraints of being under the BHP Billiton umbrella, South32’s executive team, led by Graham Kerr, the miner’s former finance director, can dedicate itself to micromanaging individual mines and commodities lines in a way that should create much more value for shareholders.
The prospect that a predator may try to buy the business, entirely or in part, also has been seen as likely to provide a floor for the price. Mick Davis, with his X2 Resources mining venture, has been tipped to line up a bid, and analysts have noted that South32 is akin to Xstrata, which Mr Davis ran before Glencore swallowed it.
Complicating the matter is that South32’s primary listing is in Sydney, with secondary quotes in London and Johannesburg. For that reason, South32 will not be held in an index over here, although that doesn’t seem to have put off institutional investors. It all got off to a wobbly start yesterday. Shares in South32 slid in Australia, did little in South Africa and added a couple of pennies in London, leaving the standalone business value at the end of its first day at just under A$11 billion.
That was only A$600 million or so more than the amount that was wiped off the value of BHP, as shareholders lopped off the estimated value of the departing assets and what they would have contributed to future dividends.
South32 will be occupying itself with some of the toughest commodities in cyclical terms. The impact of China remains an unknown quantity and it is hard to imagine South32 competing with the dividend yields of some of its rivals, including more than 5 per cent at BHP itself.
Nevertheless, its management is skilled and highly incentivised to create more value — reason enough to hold the shares, at the very least.
Countries 5
Commodities 8
MY ADVICE Buy long term
WHY Focused management likely to find hidden value in the standalone assets while a bid approach for some, if not all, of the business is likely
There should not have been much surprise when, on Saturday, the Proton Breeze-M rocket launch in Kazakhstan went awry. It is the fourth time that a Proton rocket has failed since December 2012, a track record that one analyst called “catastrophic”. No wonder, then, that Inmarsat lost some of its thrust in London yesterday, because the satellite company works with ILS, the company behind the Proton.
Inmarsat’s shares have been trading at record highs, but they slid 29p to close at 966½p as investors fretted about further delays to better-quality earnings. Inmarsat had already warned once this year that its third GX satellite would be delayed, with a commercial launch of services put back to the mid-to-late third quarter.
Now, with a launch date still uncertain, the company has warned that the new hold-up will have a small negative effect on revenue and earnings this year.
Inmarsat has a launch option with Elon Musk’s SpaceX, but that doesn’t open until mid-2016. That means that its guidance for wholesale revenue growth of between 8 per cent and 12 per cent has been withdrawn. Inmarsat still expects to book $500 million of revenue from its GX satellites within five years of launch, but it’s going to be a long, long time before the shares even think about going into orbit again.
It might be time for investors to consider taking profits until there is clear, blue sky over the Baikonur Cosmodrome and the new GX satellites bring the earnings transformation that they promise.
Revenue $1.28bn
Profits $701m
MY ADVICE Take profits
WHY Launch delays are holding back profits
Anyone trying to get a flight at short notice knows that “budget”in the airline sector does not refer to the fare or to any bells and whistles you might desire. Ryanair, easyJet and Norwegian all offer higher prices to those who want to take more baggage, reserve a seat or secure priority boarding — not business class, but differentiation for those who can afford it — and Wizz Air is introducing new fare categories, too. Such initiatives have been behind the recent earnings success at Ryanair and easyJet.
Since their market debut nearly three months ago, shares in Wizz have rallied, up from £11.50 to last night’s close of £14.42 (although, to be fair, they were 3p down on the day).
Best known in the UK for running flights to and from Luton, Wizz has the run of a 500 million-person central and eastern European market where Ryanair is not very active, easyJet even less so.
Several broking houses believe that the shares have some way to go because of Wizz’s growth potential. On ebitda earnings of about €240 million expected for the year to next March, share price targets range from Goodbody’s £18 down to house broker Barclays’ £15.80. Climb aboard.
Passengers 16.4m
Load factor 86.7%
MY ADVICE Buy
WHY Growth potential in eastern and central Europe
And finally . . .
EC2V Technologies, the high-tech systems and components maker, lifted its full-year dividend by nearly 16 per cent to 5.1p a share after reporting an improvement in profits and revenues. The company, which is in a turnaround phase under Stephen Blair, the new chief executive, grew adjusted pre-tax profits by 16 per cent to £39 million on a 3.3 per cent increase in revenues to £224.9 million. Mr Blair declared that he remained cautious about the economic backdrop despite the 12-month order book growing by 14 per cent. Shares lost 2¼p to 238¾p.
