The South32 Ltd (ASX: S32) share price is up over 3% to $2.98 this afternoon following the release of its full-year results.
Here are key highlights from FY 2017:
- Revenue increased 20% to US$6,950 million.
- Profit after tax of US$1,231 million compared to a loss of US$1,615 million.
- Underlying earnings up 730% to US$1,146 million.
- Earnings per share of 23.2 U.S. cents.
- Full-year dividend of 10 U.S. cents per share.
I thought that this was a strong result from South32 and management ought to be commended for the hard work it has done swinging the company from a US$1.6 billion loss in FY 2016 to a $1.2 billion profit this year.
Though it did get a little help from external factors. According to the release, a combination of high operating leverage and stronger commodity prices played a key role in delivering the substantial improvement in its financial performance.
This led to free cash flow more than tripling to US$1.9 billion, leaving the company with a net cash balance of US$1.6 billion at the end of the financial year.
A key highlight in my opinion was its aluminium operations. Record production at Mozal Aluminium and good cost controls resulted in strong EBITDA growth from the segment.
Should you invest?
Overall I feel South32 and its diversified operations are a great option for investors looking to gain exposure to the resources sector.
But as with every resources share, a successful investment will come down largely to whether or not commodity prices remain favourable.
For South32 it is arguably coal and aluminium demand to watch out for. If you feel demand for these two commodities is on the decline then stay away, but if you're bullish then it may be worth considering an investment in South32 ahead of sector peers BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).
