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Ingham ARM Earnings Preview


Miner African Rainbow Minerals reports results for the twelve months ended June 2017 on Thursday, 7 September. Whilst we know what the quantum will be, approximately R3,2 billion or 1663 cents per share, the composition of that is more important than the number in isolation.

This suggests growth of over 200% and earnings will be largely spread evenly between the first and second halves.

If investors are tempted to see a price earnings ratio of 6,5x, at a share price of 10930 cents, as an indicator of good value, don’t be. A PE ratio is largely irrelevant for a mining business subject to numerous variables that can significantly affect earnings.

Given the unsettling legislative issues facing mining I tend to recommend little or no exposure to South African mining stocks. BHP Billiton and Glencore, which are international miners, are recommended.

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However, for those keen to take a punt my preferred pure play chrome exposure on the African Rainbow theme is Assore, which is the 50% JV partner in Assmang. Assore reported a strong annual result on 30 August on buoyant steel markets, including stainless steel which benefitted chrome. Chrome ore volumes grew by 12% and the price of chrome ore doubled in US dollars.

However, Assore at R273 has risen above my target price of R250, climbing from below R170 at the end of June. With there being no certainty that the prevailing demand and pricing will prevail for any length of time, investors need to be cautious now at these levels.

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