Harvey Jones takes a shovel to Eurasian Natural Resources Corporation (LON: ENRC).
I'm shopping for shares again, and I'm looking for something cheap to pop into my basket. Should I dig into Eurasian Natural Resources Corporation?
I've been so used to FTSE 100 companies posting solid five-year growth figures that it's a shock to check the numbers on Eurasian Natural Resources Corporation (LSE: ENRC). Frankly, they're woeful. All the miners have struggled lately, but few have been as hopeless as this Kazakhstan-based miner and metals company. That said, this could make it an interesting contrarian play. So should I buy ENRC?
If you had invested in ENRC five years ago, you would have lost 78% of your money. You would also have lost heavily over four years, three years, two years, one year and the last month. Financial performance in 2012 was poor, with ENRC posting a net loss of $804m, against a $1.97bn profit in 2011. Revenue fell 18% to $6.32bn. It also suffered a slew of costly write-downs totalling $1.5bn, including a $608m impairment charge on its Kazakhstan aluminium business. Investors didn't even get a final dividend. All the major miners have been hit by falling commodity prices, but this is of a different order.
ENRC is a troubled company. Since listing on the FTSE 100 in 2007, it has faced a Serious Fraud Office investigation into corruption allegations and a Financial Services Authority probe into its corporate governance. The so-called "Trio" of founding Kazakh shareholders were memorably accused by ousted board member Ken Olisa as being "more Soviet than City". You need to carry out a careful investigations of your own before trusting your money to this stock.
Yet ENRC's share price is up sharply in recent days, helped by broker UBS upgrading its rating from neutral to buy with a target price of 320p. That's 31% above current share price of £2.44. Continuing in a positive vein, ENRC generates solid cash flow from its Kazakhstan assets, with production volumes records in coal, copper, ferroalloys and electricity. Earnings per share (EPS) are set to grow 26% this year and 44% in 2014. Its geographical position, close to giant Chinese and Russian markets, helps cut its transportation costs, giving it an advantage over its rivals.
All miners are a little risky, but ENRC is clearly more risky than most. Even its diversification plans seem to add more danger, as it targets two strife-torn lands, the Democratic Republic of the Congo and Zimbabwe. Any investment should be seen as speculative, which is fine, provided you understand the risks you are taking, and limit the potential fall-out. ENRC trades at 8.7 times earnings, which is only marginally cheaper than BHP Billiton and Rio Tinto, both trading at around nine times earnings, with none of the aggro. Better still, they yield 3.9% and 3.6% respectively. With these FTSE 100 stalwarts going cheap, Eurasian Natural Resources Corporation looks too risky for me. More daring investors might decide it's worth a punt.
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> Harvey doesn't own any company mentioned in this article.