A steady and re­li­able div­i­dend payer

Financial Mail - Investors Monthly - - Analysis - Char­lotte Mathews

As­sore is not the high­est div­i­dend-yield­ing share on the JSE, or even in the top 10. But thanks to the own­ers’ large share in the busi­ness, it is a gen­er­ally re­li­able div­i­dend payer, which should at­tract in­vestors who know lit­tle about its core steel­mak­ing com­modi­ties of iron, chrome and man­ganese ore.

As­sore is in a 50:50 min­ing and pro­cess­ing joint ven­ture called Ass­mang with African Rain­bow Min­er­als (ARM) in iron ore and man­ganese. It also owns 100% of the Dwarsriv­ier chrome mine af­ter buy­ing out ARM’s stake last year, just as chrome ore prices took off. Af­ter iron ore, As­sore’s most prof­itable busi­ness last year was the mar­ket­ing and ship­ping of Ass­mang prod­ucts through Ore & Metal Com­pany.

The div­i­dend for the six months to De­cem­ber was 600c/share. Sec­ond-half div­i­dends have al­ways been at least the same and usu­ally higher than the first half. If As­sore de­clares at least 600c for the sec­ond half of this fi­nan­cial year, mak­ing R12 for the 2017 fi­nan­cial year to June, its for­ward div­i­dend yield rises to 6% from its his­tor­i­cal 5.56%.

There’s no rea­son to be­lieve the fi­nal div­i­dend will be lower, even though the prices of its com­modi­ties have mostly come off their re­cent peaks.

Cap­i­tal gains on As­sore shares are more elu­sive. At R197.59 the price is 10% higher than a year ago, but on a fiveyear view there’s a 24% cap­i­tal loss. On a to­tal re­turn ba­sis,

tak­ing into ac­count R34.50 of div­i­dends de­clared in the past five years, the loss is 10.5%.

In the sec­ond half of last year and into the be­gin­ning of this year As­sore ben­e­fited from surg­ing prices of iron ore, chrome and man­ganese, re­spond­ing to growth in steel pro­duc­tion in China cou­pled with sup­ply bot­tle­necks. Chrome and man­ganese have lost some mo­men­tum, but iron ore is still firm. Thanks to dol­lar weak­ness, the rand has been stronger in the six months to June than it was in the pre­vi­ous year, which will also put a brake on As­sore’s sec­ond-half prof­its.

In the six months to De­cem­ber As­sore re­ported its av­er­age price for 62% iron ore fines was US$65/t from $51/t in the same pe­riod in 2015. High-grade man­ganese went to $6 per dry met­ric ton unit (dmtu) and the price of 44% chrome touched a peak above $400/t, a dou­bling of its pre­vi­ous price. At the end of June, 62% iron ore was be­ing sold at about $68/t, 36%-37% man­ganese ore at $5.10-$5.35/dmtu and 42%-44% chrome ore at about $170/t af­ter a sud­den cor­rec­tion in early May. The rand strength­ened to be­low R13/$ from about R13.75/$ at the start of the year.

Core Con­sul­tants MD Lara Smith says in the May Fer­rochrome Re­port that the cor­rec­tion was caused by high stocks at Chi­nese ports, and it would take months to re­duce stock­piles. In re­sponse to the lower price, there was some panic sell­ing and pro­duc­tion cut­backs by chrome min­ers. A strong rand has also squeezed SA pro­duc­ers’ profit mar­gins.

In Core’s June Man­ganese Re­port, Smith says man­ganese ore prices are also un­der pres­sure from ris­ing stocks.

An­a­lysts are fore­cast­ing soft­en­ing iron ore prices be­cause of a surge in low­er­cost pro­duc­tion. In an end-June re­port, Mor­gan Stan­ley fore­cast av­er­age prices would be $58/t next year and $54/t in 2019.

The out­look for As­sore’s com­modi­ties is at worst flat, its mar­ket­ing ac­tiv­i­ties lend some sta­bil­ity and it is a rand hedge, so div­i­dends are likely to keep flow­ing.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.