Over the last year, South32’s stock has rocketed 96% higher. The rally has pushed the miner up to about $23 billion. The stock has now been downgraded from an outperform to a hold by Morgan.
The broker feels the share price already contains the earnings “upside” of the broker. South32 also managed to outperform pure copper producers during the period. Much of the market enthusiasm can be attributed to strong FY26 results. Underlying revenue grew by 7% to US$8,108 million.
EBITDA excluding the effects of acquisitions rose by 28% to US$2,462 million. Underlying earnings after tax increased by 55% to US$1,032 million. The operating margin widened 4.7 percentage points to 31.0%.
South32’s strong FY26 performance has supported its sharp share price rally. [Courtesy: Reuters]
South32’s Strong Numbers Support Growth
South32 also strengthened shareholder returns during FY26. Its final dividend more than doubled to US5.4 cents. The full-year payout reached US9.3 cents fully franked. Net cash increased to US$283 million.
Free cash flow also grew 136% to US$610 million. Chief executive Matt Daley highlighted the company’s strategic repositioning. South32 is focusing more heavily on upstream base metals. The company also aims to become simpler and stronger.
However, the 96% increase in the share price raises valuation concerns. Morgan’s therefore sees fewer reasons for further upside. Investors must weigh stronger earnings against the current valuation.
- Revenue: US$8,108 million, up 7%.
- Underlying EBITDA: US$2,462 million, up 28%.
- Underlying earnings: US$1,032 million, up 55%.
- Free cash flow: US$610 million, up 136%.
Australian Finance Group Shares Carry Housing Risks
Australian Finance Group shares present a different investment picture. The stock closed near $1.435 at the start of the week. It had fallen almost 49% over twelve months. The stock also remained near a 52-week low.
MPC Markets sees further downside from slowing property conditions. Home loan applications have fallen sharply since the May federal budget. AFG’s earnings remain closely linked to mortgage volumes.
Yet the company delivered strong FY26 operating results. Net profit after tax increased 39% to $49 million. Underlying profit rose 33% to $54 million.
Australian Finance Group faces pressure as weaker housing activity affects mortgage applications. [Courtesy: The Adviser]
AFG’s Results Highlight The Contrarian Case
AFG’s residential settlements increased 18% to $75 billion. Its loan book also expanded 30% to $7.1 billion. More than 4,300 brokers now operate through the group.
These brokers write roughly one in nine Australian mortgages. The valuation also appears relatively low. AFG trades at 8.55 times earnings. Its yield stands at 5.94%. However, housing conditions remain the central risk for investors.
The company’s earnings could remain pressured while applications stay weak. This creates a potential opportunity for investors expecting housing activity to recover.
- Net profit: $49 million, up 39%.
- Underlying profit: $54 million, up 33%.
- Residential settlements: $75 billion, up 18%.
- Loan book: $7.1 billion, up 30%.
- Yield:94%.
Magellan Financial Group Offers A Contrarian Buy
Magellan Financial Group stands apart from the other two stocks. Morgans remains constructive despite reducing its price target. The Barrenjoey merger is central to that view.
The merger was completed on 1 July. The investment bank contributed $112 million of operating profit after tax in FY26. It achieved a 32.9% return on equity. However, Magellan’s headline results remain challenging.
Statutory net profit after tax was $146 million. That result was roughly half the prior year. Standalone Magellan revenue declined 12% to $291 million. Combined funds under management reached $41 billion at 30 June.
Magellan’s Barrenjoey merger creates a new growth path despite weaker headline earnings. [Courtesy: CEOWorld Magazine]
Buy, Hold Or Sell: What Investors Should Watch
Magellan shareholders received a fully franked second-half dividend of 25.5 cents. The payout represented an 80% payout ratio.
The group targets a payout range between 60% and 90%. Magellan plans to rebrand as Barrenjoey, subject to shareholder approval. The vote is expected at the annual general meeting in October.
Across the three stocks, broker views remain sharply divided. South32 faces valuation concerns after a 96% gain. AFG carries housing-cycle risks despite cheaper valuation metrics. Magellan offers the strongest contrarian argument through its transformation.
- South32: Hold after a 96% twelve-month gain.
- Australian Finance Group: Sell amid housing market risks.
- Magellan: Buy based on the Barrenjoey merger opportunity.
Also Read: The Volatility Trap: How Leverage and Macro Forces Rocked the Crypto Market
FAQs
Q1: Is South32 a buy or hold?
A1: Morgan downgraded South32 to hold after its 96% twelve-month gain. The broker believes the earnings upcycle is priced in.
Q2: Why is Australian Finance Group under pressure?
A2: AFG shares fell almost 49% over twelve months amid weaker mortgage applications. MPC Markets expects further downside from housing conditions.
Q3: Why is Magellan considered a buy?
A3: Morgan remains constructive after the Barrenjoey merger completed on 1 July. The investment bank contributed $112 million of operating profit after tax.
Q4: What dividend did Magellan pay?
A4: Magellan paid a fully franked second-half dividend of 25.5 cents. The payout represented an 80% payout ratio.
Disclaimer
This article is for general information and does not constitute financial advice. Share prices and company conditions can change rapidly. South32, Australian Finance Group and Magellan carry different risks. Investors should consider valuation, earnings, housing conditions and corporate developments before making decisions. Independent financial advice should be obtained where appropriate. Past performance does not guarantee future results.
Source Links
The Motley Fool Australia – South32, Australian Finance Group and Magellan shares
