The average target price of TGA.JO is 11921 and suggests 25% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 13500.0. This translates into 42% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 10500.0. This suggests 10% upside potential. Even the most pessimistic analyst believes there will be stock growth. 

Thungela Resources Limited engages in the mining and production of thermal coal in South Africa. The company owns interests in and produces its thermal coal from seven mining operations in the Mpumalanga province of South Africa, including Goedehoop colliery, Greenside colliery, Isibonelo colliery, Khwezela colliery, Zibulo colliery, Mafube colliery, and Rietvlei colliery. It also exports its products to Indian, Asian, SEA, the Middle East, and North African markets. The company was founded in 1945 and is based in Johannesburg, South Africa.

S. Africa

Thungela Resources Limited

Basic Materials

The company tries to pay dividends regularly but only sometimes does so. It has paid dividends in roughly half the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has been outstanding and can be rated excellent compared to its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends annually. 

TGA.JO reported revenue of ZAR 35 554mn in the last 12 months, up 16% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 29% from FY23 to ZAR 26.76. Market expects EPS to reach ZAR 24.93 in FY25.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 29ppts over six months and grown 8ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.

The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 24.1% in the last 12 months, a decline from 31.8% in FY22. 

Historically, TGA.JO has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 10.1%, down from 16.9% in FY22. 

Another important profitability metric, return on assets (RoA), amounted to 7.6% in the last 12 months, a decrease from 8.3% in FY23. The market analysts predict that RoA will be 4.9% in FY24, though below its peers in this period. 

Thungela Resources Limited reported a return on equity (RoE) of 14.3% in the last 12 months, up from 14.1% in FY23. The market consensus projects an RoE of 9.3% in FY24, again behind its peers. 

In the last 12 months, the return on capital employed (RoCE) declined to 9.2%, below the peers. The consensus estimate for FY24 for RoCE is 10.3%, again behind the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 3.3 in the past several years. This ratio implies a excellent shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

TGA.JO has below average trading liquidity. The average private investor can sell his common position in the stock almost immediately. Liquidity is usually quite stable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. The stock has a tiny market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is moderate. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, and excessive margin volatility.

In highly turbulent market conditions, TGA.JO is as volatile as an index. In other words, the stock will move with the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be limited. 

In normal market circumstances, TGA.JO is volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move much wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from moderate to notable. 

Based on key historical and expected multiples, the stock is greatly undervalued relative to its peers. In particular, the stock is underpriced on P/E, 'cheap' on EV/EBITDA, undervalued on P/FCF. 

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Thungela Resources Limited

ZAC 9522

5

Thungela Resources Limited

ZAC 9522

5

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

ZAC 9522

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