Today, I’m looking at three companies whose shares have soared during October. Are further big gains on the cards, or is it too late to buy these stocks?
Production and profits on the rise
Shares of KAZ Minerals (LSE: KAZ) are up 34% in October, extending their rise since the start of the year to 190%.
This FTSE 250 Kazakhstan copper miner is ramping up production at its Bozshakol and Aktogay projects. The company produced 81 thousand tonnes of copper cathode equivalent in 2015 but expects production to rise to 135,000 to 145,000 tonnes this year.
City number crunchers reckon the increased output will drive a leap in pre-tax profit from £8m to £80m, followed by a rise to £148m in 2017. KAZ is trading on a modest 12 times 2017 forecast earnings at a current share price of 296p, which suggests the shares could continue to advance.
However, I’m a little wary of the geographical concentration of KAZ’s assets and its high level of net debt — $2.6bn versus a market capitalisation of £1.4bn ($1.7bn) — although the company says it has “strong support” from its lenders.
“Substantially undervalued”
M. P. Evans (LSE: MPE) has gained 49% in October after the shares shot up last week on a takeover bid. The bid came from £5bn Malaysian conglomerate Kuala Lumpur Kepong (KLK). At 640p a share it valued the AIM-listed owner of palm plantations in Indonesia at £360m.
M. P. Evans rejected the approach, describing it as “highly opportunistic.” The board said the offer “is wholly inadequate and very substantially undervalues the company, its unique position and its future growth potential.”
Peer companies listed in Asia are valued more highly and M. P. Evans’ board has the backing of a majority of shareholders, who are reportedly looking for an offer of at least 780p.
So, this is very much a gamble on whether there’ll be a higher offer — from KLK or another party — and whether any offer that may be made will be high enough to satisfy shareholders. My hunch is there may be value in M. P. Evans at its current price of 618p, but I’m not going to commit money on a hunch.
The Kaye factor
Restaurants group Richoux (LSE: RIC), which operates the Richoux, Dean’s Diner and Villagio brands, has looked like a business lacking direction for a long time. However, that looks set to change with the company announcing that Jonathan Kaye is to be appointed as chief executive. Kaye is the founder and former boss of Prezzo and comes from a family that has successfully rolled out numerous restaurant chains, including Ask and Zizzi.
Richoux is seeking shareholders’ approval for a generous incentive plan for Kaye, which will give him 14% of the company if the shares reach 40p, rising to 20% if they reach 55p. The company also needs to get a waiver from the Panel on Takeovers and Mergers, because members of the extended Kaye family already have a sizeable shareholding in Richoux.
I’ve little doubt that the plan will be approved and the waiver granted. I also have little doubt that Kaye has the ability to deliver. The shares are up 38% in October to 29p (they spiked as high as 38p at one point) and I believe Richoux might just be a canny investment, based on its valuation of two times current sales and the Kaye factor.
