Full-year results from Antofagasta (LSE: ANTO) looked good, and the share price gained a few percent as a result.
Released on 20 February, the figures show rises in revenue (up 8%) and adjusted earnings (up 5%). Reported earnings per share (EPS) fell, but the company reported a 21% rise in underlying EPS.
The dividend, at 36 cents per share, is down 40% on 2022. But an 11% rise in cash flow makes me think there could be long-term gains on the cards here.
Good five years
The Antofagasta share price has had a good five years. And it has been rising in 2024 ahead of these results. Against such an uncertain background, and compared to the rest of the sector, I rate that as an impressive performance.
With a cyclical business like this, I like to keep my eye on debt. In fact, the years since the Covid pandemic have hammered that into me harder than ever. And it applies to all companies in all sectors.
No matter how good a company is, if we hit an unforseen crunch then a debt crisis can still drive it to the wall. We even feared for the survival of Rolls-Royce Holdings, that venerable UK engineering firm.
Rising debt
On the debt front, this latest update does make me a bit nervous. Net debt climbed 31% in the year, to $1.16bn.
Still, the firm’s net debt to EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio is still low, at 0.38 times. And it was a year that saw capital expenditure of $2.1bn.
So, I probably shouldn’t worry too much about the debt in this case. Especially if we head into brighter economic times in 2024… though that’s far from certain.
A lot depends on the price of copper, of course. And that’s kept pretty buoyant in the past few years. It’s the long term that really matters, though. With the new era of renewable energy and electric transport, I just can’t see the stuff not being in high demand.
Valuation
But are the shares good value to buy now? Well, on basic valuation measures, they look like they might be a bit steep.
Broker forecasts put the 2024 price-to-earnings above 30, but falling in 2025. It can be a misleading measure, though, in a cyclical sector.
Dividend yields of around 2% don’t look great. But they can vary a lot. And if we have a few better years ahead, I could see the yields climbing.
New growth phase?
And we might just be in for those better years. While I think some more about whether I’ll buy Antofagasta shares this year, I’ll finish with a quote from CEO Iván Arriagada…
With a strong balance sheet, the company is well positioned as it enters a new phase of growth. This next growth stage includes continuing the development of the future of Los Pelambres following completion of the Los Pelambres Phase 1 Expansion and initiating the construction of the Centinela Second Concentrator project.
That new phase of growth sounds good.
