Kumba’s share price shoots up as it forecasts earnings will more than double
Shares lift on trading update
THE KUMBA Iron Ore share price on the JSE yesterday jumped more than 9 percent after the company released a trading update that was pleasing to the market.
The share was trading at R190.99 yesterday afternoon after it closed at R175 on Tuesday.
Kumba, Africa’s biggest iron ore producer, said headline earnings a share for the year to December were expected to be up by between 123 percent and 125 percent, compared with the previous year, which translates to between R26.36 and R27.72 per share.
The company, which is 70 percent owned by Anglo American, also informed its shareholders that headline earnings for the period were expected to be between R8.45 billion and R8.89bn, while basic earnings for the period were anticipated to be between R8.35bn and R8.78bn.
The expected earnings would be a huge jump in profit when compared with the last reporting period. During the results presentation in February last year, the group reported headline earnings and basic earnings for the comparative period of R3.79bn and R4.69bn, respectively.
“The increase in earnings is largely attributable to the increase in export iron ore prices as well as the impairment charge of R5.98bn that was included in basic earnings but excluded from headline earnings in the comparative period,” the company said.
A year ago Kumba cut its production output and jobs to cope with the falling commodity prices. The company has since recovered.
Izak van Niekerk, an equity analyst at Mergence Investment Managers, said yesterday that the trading update had beaten the market’s expectations by a big margin.
“The update guided that the headline earnings per share is expected to be up 123 percent to 135 percent, which was higher than the market consensus expectation of 87 percent. The update implies they received better pricing for their product than the market expected or that they did better on cost and operational performance than the market expected or more likely a combination of both (prices and operational costs),” Van Niekerk said.
The favourable trading environment has lifted the share price, which has gained 20 percent during the year.
“The share price tracks the iron ore price. Iron ore prices have recovered over the last year and have been holding at levels much higher than the market expected them to settle,” Van Niekerk said.
Andrew Dittberner, the chief investment officer at Cannon Asset Managers, said the recovery in iron ore prices in the second half of last year was remarkable.
“Naturally this has had a material impact on Kumba’s result, and it is of little surprise that they have released an excellent trading statement for the year to December. The key question to figure out is whether the iron ore price is sustainable at these levels. Along with the recovering iron ore price, helping the numbers was a once-off impairment charge of R6bn in the comparative period. This results in a low-base effect for earnings per share. The market’s reaction would suggest that this announcement exceeds the consensus view,” Dittberner said.
Kumba is expected to release its results for the year on February 14.
The company’s shares were up 9.57 percent to close at R191.74 on the JSE yesterday.
Trucks are seen waiting to be loaded at Kumba Iron Ore’s Kathu mine. The group’s shares spiked yesterday after it forecast that earnings for last year were expected to have more than doubled.