Heavy metal harmony
WHILE THE JSE is a commodity heavy market, it seems the concept of “metals trading specialist” doesn’t carry the excitement factor of a long shot exploration counter or a hit-and-miss junior miner. While the thrill of buying into another Ocean Diamond Mining or another Petmin will always drive speculators towards the excitable fringes of the mining sector, there’s much to be said for the elements of reliability that are rather prominent in the latest results from metals trader Metmar.
The downturn in commodity prices obviously smacked Metmar’s top line, which was down by more than 50% to R1,7bn for the year to end-February 2010. You might imagine such a revenue crunch to rattle through to bottom line and send ripples through the cash flow statement and balance sheet. Yes and no. Operating profits were down by more than 60% to R67m, but its bottom line was bolstered by a R153m one-off profit on the sale of PGR 17 Investments and Mogale Alloys.
More importantly, cash flows from operations were a reassuring R72m, leaving Metmar with cash of R98m in the bank (equivalent to 45c/share). That explains (and justifies) a distribution from share premium of 25c – which puts Metmar on a yield of well above 5%.
At the latest earnings of 81c/share, Metmar is trading on a historical earnings multiple of around 5,3 times. But that includes the one-off profit. If only operational profits are tallied then earnings comes in at around 33c/share. But earnings should be better in financial 2011, with management already reporting an improvement in business in the early months of the new financial year.
We suspect the earnings level of 90c/ share recorded in its 2009 financial year is a difficult target, judging by the greasy slope