South32 initiated at 'hold' by Societe Generale

Societe Generale initiated coverage of BHP Billiton spinoff South32 at ‘hold’ with a 120p price target, saying strong cash generation is offset by a weak commodities mix and a fair valuation.

“As South32’s operations are relatively mature, we are not factoring in significant volume growth for the company,” said the bank.

It noted that South32 comprises BHP’s former manganese, aluminium, nickel and silver businesses, as well as some ex BHP thermal coal and coking coal assets in Australia and South Africa.

SocGen said it is now more cautious on aluminium/alumina and manganese, which are two key commodities in South32’s mix.

“South32 starts with a strong balance sheet and we expect it to be debt free by 2017. Hence we see some upside to the company’s commitment to a minimum 40% dividend payout,” it said.

Going forward, the bank expects the company to be a potential predator or prey in the coming years.

It noted that South32’s chief executive Graham Kerr has had to deny press speculation that the company was approached by potential buyers such as X2 Resources and Glencore, which could be attracted by the group’s exposure to aluminium, nickel and zinc.

At 12:45, shares were down 0.9% at 104.04p.