South32 - positioned to leverage commodity price upside
South32's result confirmed the leverage that exists (up and down) in the resource miners - as we saw with BHP Billiton last week. FY-16 results were, as expected, down markedly compared to FY-15 (noting we initially invested in South32 in May-15, towards the end of FY-15 as part of the BHP demerger and with additional on-market purchases).
Specifically, revenue declined from $7.7b to $5.8b, and underlying earnings declined from $575m to $138m in FY-16 vs FY-15. Additionally, good efforts were made to reduce the cost of production across its operations.
The company is in a strong position financially. Strong cash generation resulted in a reduction in debt - in fact the company now has a net cash position. This also afforded the payment of a maiden dividend of 1cps.
South32 offers significant leverage to a recovery in commodity prices. In the interim, it is in strong position financially (even with commodity prices where they are currently), and it can thus take advantage of opportunistic acquisitions should they arise.