The Motley Fool

Is Sirius Minerals plc’s 36% share price slump set to continue in 2018?

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.

Question mark made up of pound symbols
Image source: Getty Images.

Stock markets have been hitting new highs lately but not all companies have risen with the tide. In fact, some have seen a marked fall in their value over recent months. North Yorks miner Sirius Minerals (LSE: SXX), whose shares have declined 37% since last summer, is one such company. International staffing group Empresaria (LSE: EMR), which released a trading update today, is another.

Confidence dented

I was bullish on Empresaria in an article in October. Management had said in the group’s half-year results that it was “confident” of meeting full-year market expectations. Forecast earnings of 13.9p a share put it on a very cheap price-to-earnings (P/E) ratio of 9.1. And with the group also being nicely diversified by recruitment sector and geography, I rated the shares a ‘buy’ at 127p.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

My confidence (and that of management) proved misplaced, because the shares dived over 20% on 21 November when the company issued a profit warning. It advised that while it still expected to post a record profit for the year, it would be lower than anticipated. It said this was primarily due to reduced margins in Germany following changes to temporary worker legislation, and a continuing weak market in the Middle East, resulting in additional costs for resizing that business.

Considerable scope for growth

Today’s update on the full-year outturn has received a more positive response from the market, with the shares up 6% to 107.5p, as I’m writing. The company said it has worked to minimise the impact of the legislation in Germany and that resizing the Middle East business has resulted in an improved performance. It advised that it expects to report a record adjusted profit before tax, up 20% year-on-year, and a 9% increase in diluted adjusted earnings per share. This would equate to 12.3p, giving a P/E of 8.7.

Diversified by geography and sector, and continuing to invest in its existing business and to identify complementary acquisitions, I believe this £53m cap AIM-listed company has considerable scope for growth in the years ahead. I continue to rate it a ‘buy’.

Major investment proposition

FTSE 250 firm Sirius Minerals is a fascinating investment proposition, as it develops its giant potash mine. It made good progress on meeting its 2017 milestones aside from a slight delay in preparations for shaft sinking, but management is “confident that this small loss of time will be recovered over the remainder of the project schedule.”

That schedule targets first production for 2021, with full volume of 20m tonnes a year being reached in 2027. A number of offtake agreements for its polyhalite product have already been struck at $150 per tonne. This implies revenue of $3bn a year at full production and an EBITDA profit of about $2.35bn at the mid-point of the margin range forecast by the company. I envisage a net debt/EBITDA ratio of two and an enterprise value/EBITDA multiple of 10 as reasonable. This would give a market cap of $18.8bn, compared with $1.4bn at today’s share price of 22.22p and current exchange rates.

Management is aiming to keep shareholder dilution to a minimum. Big share price gains and a potentially massive dividend yield (annually increasing over the mine’s 100-year life) could be on offer for investors today. I rate the stock a ‘buy’, accepting the various risks associated with such a project.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

G A Chester has no position in any of the shares mentioned. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.