Our opinion on the current state of KIOKumba (KIO) is a highly successful iron mining operation which is owned (79%) and controlled by Anglo American. The share price fell to as little as R223 in March 2020 because of COVID-19 but has recovered to R668 before falling on the March 2022 quarterly results. Importantly, exports make up 94% of the company's total sales - which means that it is not heavily dependent on local sales but is vulnerable to any strengthening of the rand and the effectiveness of rail transport to ports. The company is planning to build a 100mw solar park over the next 3 years to reduce its reliance on Eskom. The company has had to contend with heavy rain and bad rail performance. On 10th October 2022, Kumba announced that, because of the force majeure at Transnet, it would lose about 50 000 tons of production per day, rising to 90 000 tons after 7 days as a direct result of the Transnet force majeure. Furthermore, they said they would lose about 120 000 tons of exports which will cost them about $8,5m a day in production and $11,7m in lost export revenue. In its results for the six months to 30th June 2023 the company reported revenue down 11% and headline earnings per share (HEPS) down 17%. The company said, "We delivered an earnings before interest, tax, depreciation and amortisation (EBITDA) of R19.8 billion and an EBITDA margin of 52%, underpinned by an average realised free-on-board (FOB) export price of US$106/wet metric tonne (wmt), 4% above the average benchmark price. Production increased by 6%". The company lost R6bn to copper cable theft during the period. In a production report on the 3 months to 30th September 2023 the company reported total production down 2% and iron ore sales down 6%. The company said, "...multiple Transnet equipment failures and adverse weather conditions at Saldanha Bay Port in September impacted ship loading. As a consequence, sales decreased by 12% relative to Q3 2022 and by 6% compared to Q2 2023". The share trades at a multiple of 9,73 and a dividend yield (DY) of 6,39% - which seems to compensate the investor for the commodity risk in this rand-hedge share.
KIO trade ideas
KIO - My Best Idea This Past WeekI don't care if you accuse me of 'highlighting a trade that worked' as I've always showcased my shortcomings or trades that have not worked out planned.
I'll say it myself: I've had my eye on the ball, staying disciplined as always to find the opportunities that offer the best reward-to-risk . This has resulted in me being fortunate to see several names go my way in the last few weeks by having communicated the correct positioning for my employer's clients.
Of the lot, KIO was a standout. Below, I've inserted the original chart as included in last week Monday's research notes. The price at the time was R405. It traded as high as R484 this week.
I also managed to identify the long side on AGL (last Thursday 07 September) at R484. It traded as high as R549 as well as TGA at R134 recently - it traded at 16999c on Friday.
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Kumba remains in its downtrend range - Which way to break?Kumba Iron Ore has been moving in this consolidation flag range since January 2023...
The price has indeed been making lower highs and lower lows.
But which way is it going to break, I believe depends on the Resources index.
As things look with the JSE ALSI, the downtrend is strong and more evident (despite this blip up).
But regardless we have different levels to watch.
For example, if the price breaks above R483.00, it'll give a great signal to go long and hold until it reaches a target of R600.00
If the price breaks down then the likelihood of a target with be R280...
This is a classic example of a Neutral trade with a strong trading plan of action.
Now we wait.
KIO Within Timing Band for a Medium Term LowThe price for KIO hit a target of 2 intersecting trendlines providing a springboard for price to move upwards. Will be looking to go long observing the following factors:
1. Price closing above the blue trendline
2. A short-term back-test is a good entry for more risk acceptance
3. Profit target of at least 30%
$JSEKIO - Kumba Iron Ore: Speculative Buy Outlook InvalidatedThe recent speculative buy outlook on Kumba has been short lived, link below.
Price has broken below 40800 and now 33991 becomes the next level of interest.
The three wave move from 80338 to 33991 is a large zigzag and can be all of the correction but it can also be wave (W) of a combination corrective pattern.
I will sit on my hands on Kumba and watch price as it approaches 33991.
$JSEKIO - Kumba Iron Ore: Speculative Buy Above 40800The bigger picture structure for Kumba is quite complex so I will be looking at price action only from the 20 March 2023 low of 40800.
A recognizable price pattern is the three wave expanded flat for wave ((ii)).
If 40800 holds, wave ((iii)) can take price beyond 56000 giving a good risk:reward trade.
My conviction is not that high but trading is all about taking and managing risk.
KIO - Previous Sell at R605Kumba Iron Ore (KIO, 46032c) | WEEKLY CHART | Two patterns to note: (1) A multi-year megaphone formation and (2) a potential bear flag structure. We COULD attempt to rally in the short term however a breach of the incline support may trigger a continuation to the downside opening up a medium term continuation short/sell opportunity. Last Idea: Short at R605 (07 June 2022)
KIO: building on higher lows?A price action above 44100 supports a bullish trend direction.
Crossed just above its 200-day simple moving average.
Confirmation for further upside potential for a break above 45800.
The first target price is set at 47200.
The second target price is set at 49900.
The stop-loss is at 43600 and will negate the bullish bias.
Remains a risky trade.
KIO: some further upside potential?A price action above 48000 supports a bullish trend direction.
Increase long exposure for a break above 51300.
Upside price potential at 54300.
Downside price potential at 46300. Negate the bullish stance for a break below this level.
Remains above its 200-day simple moving average.
The price action might attempt leg 3 of the megaphone pattern.
KUMBA- Lower highsAs shown on the daily chart, KIO has steadily been making lower highs from the boom period of 2021. This chart does not bode well for the price with their earnings due on 21 Feb. Momentum indicators are looking lackluster to say the least and from a fundamental point of view, I think supply chain issues and Eskom has hampered production and delivery. I have a sneaky suspicion that earnings are going to disappoint. I expect a gradual fade well into April and would not be surprised if the stock went all the way down to test that support level of around R350.00. looks like a good short to me...
Kumba Iron Ore new Cup and Handle showing major upside to R686.3Cup and Handle has formed aver the last year.
Price broke above the brim level but then moved sideways. During the time it was making higher lows which is bullish by nature, but we haven't had the push we need.
Hence, the price is retesting the Brim which is forming a conservative entry for breakout traders.
7>21>200 - Bullish
RSI>50 - Bullish
Target R686.33