South32 Ltd (ASX: S32) shares are trading at $3.33 on Friday, up 0.3% for the day so far.
This diversified ASX 200 mining share has been on a bit of a tear of late.
South32 shares have risen 15.22% over the past 13 trading days.
As the chart below shows, South32 shares closed at $2.89 apiece on 26 March.
That wasn't far off the stock's 52-week low of $2.75, which it reached on 21 February.
Had you put $10,000 into South32 shares 13 days ago, they'd be worth $11,522.40 now.
So, many of us missed a nice little buy-the-dip opportunity there.
But not to worry.
One top broker reckons it's not too late to buy South32 shares.
Here's why.
Should you buy South32 shares?
Top broker Goldman Sachs has a buy rating on South32 shares with a 12-month price target of $3.80.
That implies a potential 14% upside for investors who buy the ASX mining stock today.
In a new note last week, Goldman said South32 shares have a net asset value (NAV) of $3.80. The NAV measures the value of a company's assets less its liabilities, divided by the number of shares outstanding.
Goldman said that South32 and Rio Tinto Ltd (ASX: RIO) look undervalued on a price-per-NAV basis compared to the two biggest mining shares, BHP Group Ltd (ASX: BHP) and Fortescue Ltd (ASX: FMG).
The broker noted that South32 has reported reduced Australian manganese production and sales in CY24 against increased low-grade 37% manganese pricing.
This may go some way to explaining why the broker has reduced its earnings per share (EPS) estimate for FY24 from 13 cents per share to 10 cents per share.
But don't worry about that, because the future looks bright.
Goldman is estimating a three-fold increase in EPS the very next year.
For FY25, Goldman expects EPS of 31 cents per share, rising to 36 cents per share in FY26.
Why does Goldman Sachs say buy?
In addition to viewing the South32 share price as undervalued, Goldman is also bullish on copper, aluminium and metallurgical coal and South32 mines all three of them.
Goldman explains:
Buy rated on: (1) Improving FCF in 2H FY24: GS are bullish copper, aluminium, and met coal (~65% of S32 NTM EBITDA) in CY24E. (2) Attractive valuation trading at ~0.8xNAV on our estimates plus potential +A20cps upside based on recently announced sale of the Illawarra metallurgical coal operation to Golden Energy and Resources (GEAR) and M Resources for a total consideration of up to US$1.65bn (~A52cps), assuming the transaction completes as planned in 1H FY25; …
Looking ahead, Goldman expects South32 to report a fall in net debt to approximately US$500 million by the end of June.
That's well below South32's net debt target of US$1 billion to US$1.5 billion through the cycle.
As a result, the broker reckons South32 may announce the resumption of its on-market share buyback at about US$250 million per annum when the miner releases its FY24 results.
The broker also expects an improving dividend yield from 2% in FY24 to 6% in FY25, assuming South32 pays its minimum dividend payout ratio of 40% of earnings.
Goldman also predicts upside potential from various base metal growth projects.
The broker said:
… there are numerous growth projects/options that should provide long dated base metals growth; Sierra Gorda brownfields (4th milling line & oxide projects), battery grade manganese sulphate from the Clarke deposit at Hermosa + the Peake copper prospect, and copper/gold/cobalt from the Ambler Metals JV in Alaska.
