The soft stuff mat­ters

Finweek English Edition - - INVESTMENT - MARC ASH­TON

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.

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