In this week's sector spotlight, I take a look at industrial metals. Are there any opportunities in this sector for investors?
Sector Spotlight: Industrial Metals
In this report, I focus on companies with reasonable markets caps — the cut-off point being between £50 million and £100 million. It is not that companies worth less than this are not necessarily suitable investments; I think that investing in smaller caps is relatively high risk and requires specialist knowledge.
The companies are:
Profits up 109 per cent, although revenue only up by 28 per cent. But I see this discrepancy between profit and revenue growth as positive; it means the company is quite scalable and modest increases in revenue can lead to much bigger increases in profit. Furthermore, the company's balance sheet valuation is roughly twice the market cap. Its high dividend yield appears more than sustainable, considering the strength of the balance sheet. At first look, this company seems too good to be true.
The company is an African-focused, mineral sands producer and developer with mining assets in Kenya and Madagascar. Its performance to date has been impressive, but estimated profits for the year to June 2021 predict a sharp fall in profits.
As of the end of June this year, it had Net cash of US$87.6 million, consisting of Cash and cash equivalents of US$162.6 million and a Revolving Credit Facility debt of US$75.0 million. It says FY20 production achieved at the higher end of the guidance range.
|Five year high (2017)||19.9p|
|All time high (2013)||21.8p|
|Change last 12 months||17%|
|Change last five years||549%|
|Change since 2013||-6%|
|Market cap £m||183|
|Revenue growth since 2015||28.4%|
|Pre-tax profits growth since 2015||109.1%|
|Total assets/total liabilities||3.1%|
|Current assets/total liabilities||1.4%|
|Current assets/current liabilities||2.7%|
|net assets £m||362.0|
EVRAZ is one of the world's largest steel producers. It is vertically integrated with operations in Russia, Ukraine, Kazakhstan, the United States, Canada, the Czech Republic, Italy and South Africa. Key operations are in Russia, Ukraine, Kazakhstan and the US.
Five years ago the company made a $707 million loss. Last year it made a $902 million profit. That may seem like impressive growth, but in fact in 2018, profits were more than three times higher than last year.
The company carries substantial debt, has a history of boardroom infighting, and The Share Centre has a sell recommendation.
|Five year high (2018)||696p|
|All time high (2018)||696p|
|Change last 12 months||-33%|
|Change last five years||351%|
|Change since 2012||-12%|
|Market cap £m||4,784|
|Revenue growth since 2015||35.8%|
|Pre-tax profits growth since 2015||From loss making to profit|
|Total assets/total liabilities||1.2%|
|Current assets/total liabilities||0.5%|
|Current assets/current liabilities||1.7%|
|net assets £m||1,982.0|
Ferrexpo is a Swiss-based iron ore company with assets in the Ukraine.
Profits have increased 20-fold since 2015, revenue increased by slightly more than half. In the half-year to June 30th, revenue and profits fell modestly, reflecting lower pellet premiums.
Steve Lucas, Non-Executive Chairman, said: "Whilst the ongoing global COVID-19 pandemic has affected demand in most markets, Ferrexpo's operations continue to operate with minimal disruption. The Group has adapted to a changing market environment, and has sold increased volumes to China where demand remains robust. As the market returns to more normal conditions in 2H 2020, we expect to see a recovery in steel demand outside China, which should be constructive for pellet premiums."
The company also announced an interim dividend.
Its balance sheet looks strong, and net asset values exceeds market cap.
|Five year high (2017)||315p|
|All time high (2011)||499p|
|Change last 12 months||9%|
|Change last five years||429%|
|Change since 2007||26%|
|Market cap £m||1,122|
|Revenue growth since 2015||56.8%|
|Pre-tax profits growth since 2015||1,740%|
|Total assets/total liabilities||3.3%|
|Current assets/total liabilities||0.9%|
|Current assets/current liabilities||1.9%|
|net assets £m||1,353.0|
With a small market cap and minimal trading history, revenue is zero, and the company is loss-making, I considered omitting the company from this report.
But it is in life sciences and biotechnology business — a sector I think has enormous potential as well as carrying significant risk. (What it is doing listed in the Industrial metals sector, is another matter)
It has only been listed on the stock market since 2018.
The company figure on a GPCR Technology Platform — GPCR stands for G-Protein Coupled Receptor. According to Nature, "increased understanding of these receptors has greatly affected modern medicine. In fact, researchers estimate that between one-third and one-half of all marketed drugs act by binding to GPCRs."
The company says it applies a "novel approach to develop innovative therapies for inflammatory eye diseases and chronic pain management."
|Five year high (2020)||10.13p|
|All time high (2011)||499p|
|Change last 12 months||-94%|
|Change last five years||-72%|
|Market cap £m||68|
|Revenue growth since 2015||0%|
|Pre-tax profits growth since 2015||Losses have deepened, but fallen since 2018|
|Total assets/total liabilities||0.8%|
|Current assets/total liabilities||0.8%|
|Current assets/current liabilities||0.8%|
|net assets £m||-0.1|
All prices are approximate figures taken from Yahoo Finance on 21 September 2020.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees