I’d kick-start a Stocks & Shares ISA by targeting investments with decent-looking growth prospects.
But I’d also want a reasonable valuation, and strong operational momentum now.
Is that a lot to ask from businesses? Maybe, but several UK stocks look attractive right now based on those requirements.
My watch list sorts and grades them. So let’s talk about a company occupying one of the top positions right now.
Rising production
In February, UK-based gold producer Pan African Resources (LSE: PAF) delivered a strong set of half-year results for the six months to 31 December 2023.
The company has been making good progress developing its operational mining and exploration activities in Africa. It posted an increase in gold production of 6.7% compared to the outcome a year earlier.
Ramping up production now is a good idea because the gold price has been tearing higher through most of 2024. Happily, the company expects further production advances this year and into the future.
City analysts predict increases in normalised earnings of around 32% for the current trading year to June 2024 and 19% next year — a higher gold price leads to better cash flow and earnings for the business.
The share price has been responding well to the improved trading environment:
The big risk for shareholders relates to fluctuating commodity prices. If the price of gold drops lower, Pan African Resources will not make as much money from the gold it produces and earnings may miss estimates, causing the share price to decline.
A big dividend yield anticipated
Nevertheless, chief executive Cobus Loots said the business is “well-positioned” to meet its operational and strategic objectives for the current 2024 financial year.
With the share price near 22.24p (4 April), the anticipated dividend yield for the trading year to June 2025 is almost 5%. Meanwhile, the balance sheet looks quite strong with a modest level of net debt.
That’s important for cyclical outfits like this one. When trading is good, these types of businesses need to reduce debts and save cash for the next down-turn.
However, Pan African has a decent-looking pipeline of opportunities to further develop its production over the coming years. I reckon it’s a good time to undertake further and deeper research into the company’s operations.
If investors are comfortable with volatility, the stock could make a useful addition to a portfolio of diversified positions in a Stocks and Shares ISA. After carrying out thorough research, I’d aim to buy a few of the company’s shares on short-term dips and down days.
One of the key indicators to monitor is the price of gold. If it falls back a bit from recent highs the Pan Africa share price could follow it down. Such short-term price movements may offer a better-value entry point for investors who are focused on longer timescales.
