No re­prieve in sight

Finweek English Edition - - MARKETPLACE SIMON SAYS - Ed­i­to­rial@fin­ *The writer owns shares in Bal­win.

Kumba shares con­tinue to slide on the JSE. Af­ter an all-time high of over R600 in early 2013, the miner is now trad­ing 90% lower at un­der R60 at the time of writ­ing. In time the com­pany’s for­tunes will turn and while some are sug­gest­ing that the miner may go bust, I think that is un­likely. How­ever, with iron ore prices con­tin­u­ing to fall and ex­pected prices at un­der $50 a ton for 2016 and 2017, the tough times are here to stay for a while. For the half-year to June, it made head­line earn­ings per share (HEPS) of R7.85 and if Kumba can do that again in the sec­ond half, then there will be no div­i­dend. But it does put the stock on a price-to-earn­ings ra­tio (P/E) of around 4 times. Even a drop in HEPS would see a P/E of maybe 6 times. This is seem­ingly very cheap, but with a very tough cou­ple of years still ahead I would not be rush­ing in to buy the stock. Iron ore pro­duc­tion is still be­ing in­creased glob­ally while de­mand re­mains very weak. If the price goes be­low $40 a ton, things will start to get very messy at Kumba.

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