Exxaro Resources, Limited (JSE: EXX) faces headwinds as its share experiences a third consecutive week of losses, declining over 0.5% in the current week alone. Year-to-date losses stand at over 11%, following a 5% decline in the previous two weeks. The recent 3.4% pullback adds to one-year losses, prompting institutional owners to potentially take drastic measures.
On the bright side, the company delivered strong FY2022 financials, boasting a 26% rise in headline earnings and record HEPS, fuelled by higher coal export prices and operational improvements. Additionally, EXX is actively diversifying away from coal, a move lauded by investors considering the global shift towards renewables. This involves investments in renewable energy solutions and other minerals. Moreover, the potential for dividend increases based on the strong financials further sweetens the pot for investors. Lastly, the South African government’s support for the coal industry could offer short-term tailwinds.
However, headwinds remain. Coal prices are notoriously volatile, posing a threat to future revenue. The long-term viability of coal is uncertain due to environmental concerns and the push by renewable energy, potentially dampening investor sentiment. EXX also faces stiff competition from other coal producers and alternative energy companies. Finally, regulatory complexities could increase costs or restrict operations.
Technical
On the weekly chart, Exxaro’s share price exhibits a bearish trend after breaking below an ascending channel and a 61.80% Fibonacci retracement level (golden ratio) and now sits below the 50-SMA (blue line) and 100-SMA (orange line), finding temporary support at the 200-SMA (red line). Interestingly, the upward-sloping 100-SMA recently crossed above the shorter-term 50-SMA, potentially signalling a trend reversal.
The downward-sloping RSI of 43.48 reinforces the recent bearish momentum. The price action is currently confined within the golden ratio and 200-SMA, with the price reaction at these levels likely to dictate the short-term trajectory. A sustained break below the SMA, on significant volume, could offer short-term trading opportunities towards the initial support at the R165.46 price level, with the major swing low of R R143.40 acting as the next significant level lower.
However, a push towards the 61.80% Fibonacci retracement level would open doors for further gains towards the R202.99 resistance level. A successful bridge of the initial resistance could trigger a run, with the R225.38 resistance level acting as the next significant level higher.
Summary
Exxaro Resources, Limited faces notable challenges, with the share price below key levels and a recent break below the golden ratio. A sustained break below the 200-SMA could lead to short-term trading opportunities towards the R165.46 support level, with a potential lower level at R143.40. Conversely, a push towards the 61.80% Fibonacci retracement level may open doors for gains towards the R202.99 resistance, with R225.38 as the next significant level higher.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Office for National Statistics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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