South32
Shares in South32 (LSE: S32) fell 11% today, following the release of a disappointing set of results. Although less than what the market had expected, underlying earnings still rose some 41% to $575 million for the year ending 30 June 2015. South32 took over the non-core assets of BHP Billiton (LSE: BLT), when it was spun-off in May this year. It is currently the world’s biggest producer of manganese, and has sizeable operations in coal, aluminium, silver and nickel.
South32’s assets have been largely neglected by BHP Billiton, and many of its mines suffer from relatively high costs of production. Under its new management, it announced some ambitious targets for its cost-reduction strategy. The company is looking to reduce controllable costs by at least $350 million annually and cut sustaining capital spending by 9% to $650 million by 2016.
Although it is far from being competitive, the company benefits from a strong balance sheet, with net debt of just $402 million. This should provides South32 with the financial flexibility to continue dividend payments and ride out the commodities cycle.
UTV Media
UTV Media (LSE: UTV) saw its share price rise 8% today, as it announced that it was in talks with a potential buyer for its TV franchise. Rumours point ITV as the potential buyer, but it has yet to be confirmed. UTV’s television business operates in both Northern Ireland and the Republic of Ireland.
“Discussions are ongoing and may or may not result in such a transaction being agreed” the company said in response to media speculation today.
Analysts suggest that the sale of UTV’s television business could fetch more than £100 million, despite the business making significant losses in the Republic of Ireland. Its television broadcasting business has been struggling with rising competition and the fragmentation of the market. UTV will likely use the proceeds on improving its radio and magazine businesses and return any surplus capital to shareholders.
UTV currently pays a dividend yielding 4.6% and has a forward P/E of 24.9.
Tullow Oil
Tullow Oil (LSE: TLW) shares fell 10% today, as the stock market rout continue to put pressure on crude oil prices. The price of Brent crude oil fell more than 3% to $44, as the supply glut grows and amidst increasing uncertainty with crude oil demand in the longer term.
Even though Tullow Oil is likely to remain operationally cash flow positive with the oil price at today’s level, the Africa-focused oil producer needs to invest in new well developments and fund exploration costs. Tullow Oil has a cash operating cost of just $18.6 per barrel of oil, but on a total cost basis its production cost is closer to $38 per barrel. On top of this, it needs to service its growing net debt, which currently stands at $3.6 billion.
With the sell-off in the markets, it is difficult to suggest how much further shares in Tullow Oil could fall. But, Tullow Oil is one of the lowest cost producers in the sector, and the company has had a long history of exploration successes and operational efficiency. So far, this has not helped its share price, but things could be different in the longer term.
