A company whose earnings are up over 300% has just got even cheaper. Will it galvanise your portfolio?
In July I bought a copper miner, Vedanta
(LSE: VED)
and now I find that it's a zinc miner. How did that happen?
In the last financial year, copper accounted for 61% of Vedanta's revenue and zinc only 24%. In today's interims copper's share of revenue is 56% and zinc is up to 29%. It's still a copper miner you say. However the margin on zinc is so high, at 80%, that it contributes 55% of EBITDA and copper only 35%.
The year on year change shows the dramatic shift from copper to zinc:
|
Revenue H1 2007
|
%
|
Revenue H1 2006
|
%
|
|
Aluminium
|
$396m
|
13%
|
$156m
|
11%
|
|
Copper
|
$1,678m
|
56%
|
$901m
|
65%
|
|
Zinc
|
$882m
|
29%
|
$272m
|
20%
|
|
Others
|
$48m
|
2%
|
$56m
|
4%
|
|
Total
|
$3,005m
|
100%
|
$1,385m
|
100%
|
|
EBITDA H1 2007
|
%
|
EDITDA H1 2006
|
%
|
|
Aluminium
|
$136m
|
11%
|
$38m
|
11%
|
|
Copper
|
$456m
|
35%
|
$172m
|
51%
|
|
Zinc
|
$704m
|
55%
|
$124m
|
37%
|
|
Others
|
-$6m
|
0%
|
$3m
|
1%
|
|
Total
|
$1,291m
|
100%
|
$337m
|
100%
|
Since the half year end in September the prospects for zinc profits has got even better as the metal's price has risen from $1.50/lb to $2.00/lb.
Trouble at t'mine
Vedanta's had a few problems recently. In September its new aluminium refinery and proposed mine in India ran into strong opposition and claims of environmental irregularities. The mine is now dependent on a new environmental study.
Last week Vedanta closed a quarter of its Zambian copper output after polluting a river. However the shutdown is only expected to last a week or two and will have little effect on full year profits.
The first half figures were in line with forecasts. Revenue leapt 117% to $3bn (£1.59bn) while earnings per share reached 156c, up 315%. Vedanta is still paying out only 10% of earnings in its 15c dividend, preferring to retain cash for its large investment programme.
Despite the good progress and a strong outlook the City has been spooked by a surprise move into power generation. Vedanta will build a $1.9bn coal fired electricity plant in India. This will be built in the state of Orissa, where the controversial aluminium project is sited. 2,400 Mega Watts? That'll do nicely!
Valuation
The pre-results forecast for the full year was earnings of 209p per share. The puts Vedanta on a forward P/E of 6.2. Forecast price to cashflow is 5.7. These are very low numbers, so if you believe metals will remain in big demand then Vedanta, and other miners such as Antofagasta
(LSE: ANTO)
and BHP Billiton
(LSE: BLT)
, still look cheap.
Alun owns shares in Vedanta
More:
Big Mining Is Big Value | The Lowest Of The Low | Zinc spot price charts | Copper spot price charts
