Market Wrap - Stock Pick — Exxaro
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Andile Buthelezi from Sentio Capital chose Exxaro Resources Ltd as his stock pick of the day.
"Exarro, I think they're looking quite cheap and by no means am I saying this is the 10 to 15 year call, we know just how much pushback globally co-producing companies are receiving from an environmental perspective that is, but, in the short to medium term there are still coal-fired power stations and someone still needs to supply these power stations. Yes Exxaro is largely exposed to a Eskom so there is that risk to consider but I'm encouraged by the fact that they haven't had any problems with regards to receiving payments - when it comes to Eskom purchasing coal Exxaro . They also have an export production that they sell some of their coal into the export market and there are increasing volumes now, and the incremental production growth is largely earmarked for that export market so I'm encouraged by that too. They also have a stake in an entity called Sishen Iron Ore Company which is that side business that they jointly owned with Khumba. They are spinning out a lot of cash Exxaro is committed to paying out all the cash that they receive from that entity to Exxaro shareholders and that's always a good thing. And then lastly they have a small state left in an entity called Tronox which is out in the U.S. They've sold down from around 23% below 10% now, a large part of the proceeds that they received from the sale of that stake, they've used to pay special dividends, so when they sell the remainder of that stake, I'd expect for them to use some of those proceeds to again pay special dividends potentially and I think at these levels it looks interesting."
"Exarro, I think they're looking quite cheap and by no means am I saying this is the 10 to 15 year call, we know just how much pushback globally co-producing companies are receiving from an environmental perspective that is, but, in the short to medium term there are still coal-fired power stations and someone still needs to supply these power stations. Yes Exxaro is largely exposed to a Eskom so there is that risk to consider but I'm encouraged by the fact that they haven't had any problems with regards to receiving payments - when it comes to Eskom purchasing coal Exxaro . They also have an export production that they sell some of their coal into the export market and there are increasing volumes now, and the incremental production growth is largely earmarked for that export market so I'm encouraged by that too. They also have a stake in an entity called Sishen Iron Ore Company which is that side business that they jointly owned with Khumba. They are spinning out a lot of cash Exxaro is committed to paying out all the cash that they receive from that entity to Exxaro shareholders and that's always a good thing. And then lastly they have a small state left in an entity called Tronox which is out in the U.S. They've sold down from around 23% below 10% now, a large part of the proceeds that they received from the sale of that stake, they've used to pay special dividends, so when they sell the remainder of that stake, I'd expect for them to use some of those proceeds to again pay special dividends potentially and I think at these levels it looks interesting."
