South32 Ltd (ASX: S32) shares have been out of form over the last 12 months.
During this time, the ASX 200 mining stock has lost approximately 25% of its value.
While this is disappointing for shareholders, it could be a buying opportunity for the rest of us.
That's the view of analysts at Goldman Sachs, which have just upgraded this mining giant's shares.
What is Goldman saying about this ASX 200 mining stock?
According to the note, the broker has upgraded South32's shares to a buy rating with a $3.80 price target.
Based on its current share price of $3.38, this implies potential upside of 12.4% for investors over the next 12 months.
But the returns won't stop there. Goldman is forecasting fully franked dividend yields of 2% in FY 2024 and then 6% in FY 2025.
The broker made the move largely on valuation grounds, noting that its shares are trading on attractive multiples. It explains:
Attractive valuation: trading at ~0.9xNAV (A$3.86/sh), and an attractive NTM EV/EBITDA multiple of ~4.5x.
In addition, its analysts are feeling positive about a number of commodities that South32 is exposed to. It adds:
GS bullish copper, aluminium, zinc and met coal (~65% of S32 NTM EBITDA): leading to improving FCF in FY25 (yield of ~10%) and forecast strong recovery in S32's EBITDA (+50%) in FY25.
It also appears to believe the ASX 200 mining stock would be a good option for patient income investors. The broker said:
Share buyback and dividend yield: we assume the on-market share buyback is reinstated (at ~US$250mn p.a) with the FY24 results (post potential implementation of a cost out program) and S32 continues to pay out 40% of earnings (min div payout). On our estimates, S32 is on a dividend yield of c. 2% in FY24, but increasing to 6% in FY25.
All in all, this could make South32 worth considering if you're looking for mining sector exposure in 2024.
