If you're looking for options in the mining sector, then South32 Ltd (ASX: S32) shares could be the way to do it.
That's the view of analysts at Morgans, which have named the diversified miner among the broker's best ideas this month.
Why buy South32 shares?
With South32 shares down over 10% since this time last year, the broker believes there's a lot of value on offer for investors.
And when I say a lot, I mean a lot!
According to the note, the broker has an add rating and $5.60 price target on its shares. This implies potential upside of almost 44% for investors over the next 12 months.
Morgans notes that South32 has been busy transforming its portfolio. Not only has this boosted its ESG credentials, it gives the company exposure to the decarbonisation megatrend and commodities experiencing solid price strength. The broker explains:
S32 has transformed its portfolio by divesting South African thermal coal and acquiring an interest in Chile copper, substantially boosting group earnings quality, as well as S32's risk and ESG profile. Unlike its peers amongst ASX-listed large-cap miners, S32 is not exposed to iron ore. Instead offering a highly diversified portfolio of base metals and metallurgical coal (with most of these metals enjoying solid price strength). We see attractive long-term value potential in S32 from de-risking of its growth portfolio, the potential for further portfolio changes, and an earnings-linked dividend policy.
The final sentence could also be another big reason to buy South32 shares.
Big dividends expected
Morgans is currently forecasting South32 to pay fully franked dividends of 17.8 cents per share in FY 2023 and then 22.3 cents in FY 2024.
Based on the current South32 share price of $3.90, this will mean very attractive yields of 4.6% and 5.7%, respectively, over the next two financial years.
This stretches the total 12-month potential return to almost 50%. Food for thought!
