The KAZ share price has rallied. Is now a good time to buy?

The KAZ share price seems far too low. It looks like one of the most undervalued stocks across the FTSE indices, writes Thomas Carr.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Since falling by more than 50% in the Covid-19 sell-off, the KAZ Minerals (LSE: KAZ) share price has rallied. The shares are now sitting just 14% below their 2020 high. Even so, they’re still over 70% down on where they were in 2011. As is often the case with miners, KAZ’s performance has been one of boom and bust.

The FTSE 250 group is primarily focused on producing copper, but also produces smaller amounts of gold, silver and zinc. KAZ benefits from operating mines that are among the most cost-efficient in the world, and operates out of Kazakhstan, Russia and Kyrgyzstan.

Since a company restructure in 2014, KAZ’s performance has been impressive. Over that time, annual copper production has increased from 85kt to 311kt. Revenues have increased from $665m in 2015, to $2.26bn last year. Meanwhile, net profits have averaged over $400m for each of the last four years, with record profits of $571m in 2019.

This performance is largely the result of a focus on high-growth, low-cost mines. And KAZ is committed to further optimising and expanding production at its existing mines, as well as acquiring new assets. In fact, the miner paid $900m for undeveloped assets in Russia as recently as last year. By 2022, it plans to have increased copper production by 25% from today’s level. Then by 2027, it hopes to be producing 500kt of copper a year.

The KAZ share price follows the copper price

Like all miners, the KAZ share price is sensitive to movements in commodity prices. Ultimately, profits will be determined by the copper price. But I think KAZ is in a good position. Its low-cost mines give it a net profit margin of 26%. This leaves plenty of scope to absorb lower prices and remain profitable. While a positive movement in pricing will have a disproportionately larger positive impact.

The copper price is intrinsically linked to economic growth. Such growth drives increased demand for copper, which is an important component in everything from electricity generation and transmission, to transportation and communications. In the long term, there’s logic in the rationale for copper price appreciation. Management predicts a shortfall in global copper supply in the coming decade, while electric vehicles and renewable power generation are expected to create a significant increase in demand.

Operations largely unaffected by Covid-19

The group’s operations have been largely unaffected by Covid-19, with management leaving production targets for the full year unchanged. Sales of gold made up 14% of revenues last year. A 14% increase in the gold price – since the onset of the pandemic – will go some way to offsetting the 10% plus fall in the copper price.

The current KAZ share price gives a P/E (price to earnings) ratio of around 5, based on last year’s earnings. I think that puts the shares in the ‘cheap’ category and severely underestimates the company’s financial performance. If the group manages to increase production as planned, and if the copper price stays stable, then I would expect the KAZ share price to kick on.

However, as a long-suffering shareholder, I must also warn of the risks. The company does have a high debt load. But more worrying is the collapse of the share price and subsequent restructuring in 2014. This still leaves an unpleasant after taste and hints at corporate governance issues. To reduce risk, make sure to diversify.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Thomas owns shares of KAZ Minerals. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »