May has also already seen the addition of new buys in the form of AstraZeneca and Legal & General.
In addition, my portfolio has seen corporate actions abound which has created two (very) small holdings to emerge in my portfolio.
Earlier this month I wrote how Catlin Group's final purchase by XL Group was completed with its concomitant addition of a handful of XL Group shares.
Now, with BHP Billiton's demerger, I have some shiny new South32 shares hit my portfolio.
As this is a new addition I think it is appropriate to give it a little write-up welcome (with appropriate fresh, clean overalls mining man to accompany it).
The Birth of South32I am sure there are many, many more readers out there who are personally familiar with this particular corporate action than that of Catlin.
Earlier this month the FTSE 100 mining giant, BHP Billiton, finalised its demerger of some of its non-core assets in a new company: South32.
The demerger left all BHP Billiton investors with 1 new share in South32 for every 1 share held in the mother company. As a result of my 58 share holding in BHP I am left--I won't wait for you to do the complicated maths here--with a 58 share holding in South32.
Now, unlike XL Group, obviously there is little way to assess the quality of South32 as yet being a new creation. However, some analysts have started to put together some predictions for earnings per share (EPS) figures which give us something to ponder on.
There is not a lot to go on at the moment. But I will take you on a short journey around the limited stuff we do know so far.
Quite a few analysts have already put together their predictions. Those who have have provided predictions which read like this (assuming a share price of 118p). Obviously, more so than with any other predictions, be careful not to put too much store in them:
Compared to other companies within the sector this looks pretty good value. Even assuming the lowest predictions the company does not look overly valued even in this low point in the commodity cycle.
For next year the prediction is for the EPS to weaken somewhat:
Again, the same applies. Not bad value, it would seem. Certainly good enough to warrant a hold.
Dividends (any Dividends?)
South32 has indicated an intention to provide a dividend representing 40% of underlying earnings in the future. So far I have not seen any dividend predictions. However, if we tinker with the above predictions a little bit it may give us a guide.
First, let's take the lowest consensus prediction for the next two years: 18.88 cents per share. If we take 40% of this we would have a dividend of 7.5 cents per share. What would this yield on a share at 118p each? About 4.09%. Not bad at all.
Now, let's take the most pessimistic current earnings predictions: 12.9 cents per share. If we take 40% of this we would have 5.16 cents per share. This would throw out a yield on a 118p share of about 2.8%. Again, not too bad considering it would be well covered (2.5 times in fact) by earnings.
Of course, all of this is pie in the sky guesstimation. We will have to wait and see what South32 declare when it is time!
Conclusion (of Sorts)
All in all, South32 looks an attractive company with very high-quality assets. Also, improved efficiency in utilising those assets could see it produce solid earnings growth in the near future. It also has a low debt level of $634 million which should ease its birth into the world.
Its future is an interesting one. It may be an acquisition target or may prove to be an able standalone proposition. Whatever, it may become I am happy to sail along with it for now to see where the journey takes us. As such, I plan--for now--to happily hold this new addition to see what happens.
Also, rather like with my XL holding, it is not really big enough for me to bother selling at the moment. As such, sitting with this potentially lucrative little holding (it is about 0.27% of my portfolio...smaller even than my XL holding) is probably the best option.
What do you think?
What are you doing with your new South32 shares? Selling them or keeping them?
Or indeed, are you thinking of buying into South32 or topping up the holding?
I would be fascinated to hear what you plan to do. Just comment below.
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[Image reproduced from South32]