South32 Ltd [ASX:S32] climbed 3.1% this morning to $2.99 per share.
Positive Results for South32
The miner released positive results this morning. Full year underlying earnings were up were up 730% to $1.15 billion. Revenues also jumped 20% to $6.95 billion.
According to the group:
‘A combination of our high operating leverage and stronger commodity prices delivered a substantial increase in financial performance. Free cash flow more than tripled to US$1.9 billion and we finished the year with a net cash balance of US$1.6 billion.’
Return on invested capital also improved from 1.7% to 11.4%. The miner will pay a final dividend of US 6.4 cents per share on 12 October.
Next 12 months for South32
The results look amazing right? A 20% jump in revenues and a triple digit jump in earnings. What’s not to like.
Had you jumped into South32 at the start of 2016, you’d now be up 180.3%. But don’t count on this becoming the norm.
South32’s growth was only possible because of depressed commodity prices. When the price of commodities like bauxite and coal are low, it’s harder for South32 and other miners to generate amazing profits.
But if commodity prices swing upwards like they did in 2016, then triple digit earnings growth isn’t that hard to generate.
I would be warry of jumping into South32 or any resource company now unless you had a good idea that commodity prices will continue to appreciate in the near future.
If you have no idea what commodities will do in the future, why not let resource analysts, Jason Stevenson help. He’s written a report about the 10 best mining stocks trading on the ASX right now.
Check out Jason’s free report here.
Junior Analyst, Money Morning