Kumba’s share price shoots up as it fore­casts earn­ings will more than dou­ble

Shares lift on trad­ing up­date

The Star Early Edition - - BUSINESS REPORT - Sandile Mchunu

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.

Favourable

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.

PHOTO: REUTERS

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.

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