Gold prices steady, holding sharp gains in wake of soft U.S. jobs data
On Friday, UBS analysts, led by Lachlan Shaw, revised their outlook on South32 (OTC:SOUHY) Limited (S32:AU) (OTC: SHTLF), downgrading the stock from Buy to Neutral and reducing the price target to AUD3.70 from the previous AUD4.00. The revision follows a period of strong performance by South32, which has seen the company’s shares outperform its peer BHP by approximately 20% over the past year.
The UBS team pointed out that South32’s strategic focus is expected to shift from restructuring and cash returns to pursuing organic growth. While acknowledging improvements in South32’s operational performance and its robust balance sheet, the analysts highlighted concerns over the long-term nature of growth projects like Hermosa and the offsetting impact of resource depletion at Cannington. Additionally, they noted that the forecasted free cash flow yield for the next two years is less attractive, falling below 5% compared to a long-term average of around 8%.
The downgrade also reflects a reassessment of the stock’s valuation, which now trades broadly in line with BHP, whereas it historically traded at a discount. This change in relative valuation is seen as an indicator of a more balanced risk-reward scenario for South32 moving forward.
UBS has updated its forecasts for South32 after reviewing the company’s financial results for the first half of the fiscal year 2025. The revisions include trimmed earnings projections due to higher operational costs that the company is expected to face.
Investors and market watchers will be keeping a close eye on South32’s stock performance following this updated guidance from UBS, as the company navigates the transition in its strategic priorities amidst the evolving commodities market.
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