The demerger of South32 Ltd (OTCMKTS:SOUHY) from BHP Billiton was concluded in May, and since then the stock has dropped over 40%. Shareholders are probably left with shares they don’t value completely. In the corner of investors’ portfolio, there are left the remnants of the BHP Billiton demerger.
The significance
Initially, BHP Billiton stated the demerger deal as a way to create shareholder value with a restructured management that would heed to assets which may have been not in focus. However, shareholders have been left carrying the assets baggage no one else desired. Regardless though, the deal took place and investors don’t have any option but to have shares in their account. The ADR of SOUHY trades at a 5:1 ratio where 1 share of SOUHY is equivalent to five S32 shares trading on the Australian stock exchange.
The performance
Since the demerger deal, South32 Ltd (OTCMKTS:SOUHY) announced their financial report and outlook for the year ending June 2015. The company reported free cash flow before tax and interest of $1.7 billion. South32 boasts a robust balance sheet, with a net debt of $402 million at the end of fiscal and high investment grade credit-rating.
The expectations
South32 Ltd (OTCMKTS:SOUHY) expects energy coal production to decline in 2016 and 2017. The company stated that energy coal production is expected to drop 6% to 33,650 kilotons next year and by an additional 4% to 32,500 kilotons in 2017. It expects production of Metallurgical coal to be flat by the end of 2017. Metallurgical coal formed 17% of total coal revenues in 2015 and it projected to contribute almost 19% by 2017. Considering the prevailing market scenario, coal seems to be a hardly a positive driver for South32 stock price.
