Broker says the South32 share price is cheap at current levels

South32’s shares could be cheap according to analysts at Citi..

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Key points

  • South32's shares are trading lower on Monday
  • This could be a buying opportunity based on a broker note out of Citi
  • Its analysts see plenty of upside and big dividend payments

The South32 Ltd (ASX: S32) share price is trading lower with the market on Monday afternoon.

At the time of writing, the mining giant’s shares are down almost 1% to $4.72.

Is the South32 share price weakness a buying opportunity?

One broker that is likely to see the weakness in the South32 share price as a buying opportunity is Citi.

In response to the company’s recent quarterly update, the broker retained its buy rating and $5.50 price target on the mining giant’s shares.

Based on the current South32 share price, this implies a potential return of 16.5% for investors over the next 12 months before dividends.

As for dividends, Citi is forecasting fully franked dividends per share of 38 cents in FY 2022 and then 39 cents in FY 2023. This means that if you include the next 12 month’s forecast dividends, the total potential return stretches to almost 25%.

What did the broker say?

While Citi wasn’t blown away with South32’s quarterly update, it saw enough in it to remain bullish.

Particularly given favourable commodity prices and the valuation of the South32 share price compared to other large cap miners. It feels this makes it the “cheapest” in the group at current levels.

The broker explained: “MarQ was reasonable albeit marginally weaker than Citi expectations. While FY22 prodn guidance was essentially unchanged, cost guidance was raised and FY22 earnings trimmed. However, FY23/24 estimates benefit from raised commodity price assumptions and we stay Buy rated. On nearer term multiples, S32 remains the cheapest of the large cap Aus mining stocks.”

All in all, this could make South32 shares one to consider if you’re looking for exposure to the resources sector during the current commodity boom.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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