The soft stuff matters
IN THE LAST month, Exxaro has sold off from R180 to the lower R160s. This was a level we identified as an opportunity for traders to go long on a quality counter, particularly if you are keen to use a bit of leverage.
When Exxaro reported full-year results for the year ended December 2012, headline earnings collapsed 33% and net profit was off 16%. Despite this, the company still trades on an undemanding earnings multiple of 14 times earnings with a dividend yield of 3%.
One thing you’ll notice is that Exxaro focuses on issues like safety, employee development and innovative management. These might sound like “soft” metrics but considering the issues in the resource sector at the moment, this is an important differentiator you can’t afford to ignore. Analysts are expecting decent growth in the dividend in the next two years and if the company can bring its major projects online and manage the softer side of the business in the next few years, then the counter is going to re-rate in the not-too-distant future. Look for a bounce off the R160/share level.