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Is Sirius Minerals a ‘buy’ after this news?

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Sirius Minerals (LSE: SXX) is one of the most closely-followed shares on the UK stock market. The £1.4bn market cap company owns the world’s largest and highest-grade deposit of polyhalite – a key ingredient in fertiliser – and is aiming to become one of the world’s largest producers of multi-nutrient fertilisers and potentially “disrupt the global fertiliser market.” As a result, the stock has captured the imagination of many UK investors which is no surprise when you consider the important role that fertiliser will play in feeding the world’s growing population in the years ahead.

Cash injection

Yet as an early-stage mining company, Sirius Minerals’ share price is highly volatile. For example, after beginning the year at 24p, the stock surged to 39p in early August before plummeting back to 26p in the last week or so. However, in the last few trading sessions, the shares have moved back up to 31p after the group released news on Friday that it had secured a $250m cash injection from Australian mining magnate Gina Rinehart, plugging a funding gap caused by surging development costs at the North Yorkshire mine. The extra cash should tide Sirius over while it raises more than £2bn in debt funding for the mine’s development. Does this news impact the investment case for SXX shares?

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Long-term play

To my mind, this news doesn’t change the investment case for Sirius significantly. I still see SXX as quite a risky investment simply because production at the company’s mine is not expected to start before 2021 and costs could continue to soar between now and then. Sure, there’s money to be made by trading in and out of the stock, but with revenues and profits still a long way off, the stock is extremely speculative, to my mind. As such, I won’t be investing in the shares for now.

A better growth stock?

However, one growth stock that does look quite interesting to me right now is Smart Metering Systems (LSE: SMS) which installs, owns and operates gas and electricity meters in the UK on behalf of major energy companies. As a smart meter expert, the group looks well placed to benefit from the UK government’s plans to have smart meters installed in every UK household by 2020.

SMS has released half-year results today and the numbers look solid. For the six months to 30 June, revenue increased 27% to £46.7m and EBITDA surged 29% to £23.4m. While underlying earnings were a little weaker than the first half last year due to higher investment costs, the group did hike its interim dividend by 15% signalling confidence from management. At 30 June, the group had total gas and electricity metering and data assets of 2.5m, up from 2m at the end of December. CEO Alan Foy was upbeat about the results, commenting: “I am delighted with the progress over the last six months and we will continue to invest in our business to capitalise on the domestic smart metering rollout programme.”

After a strong run over the last three years in which SMS rose around 150%, the stock has pulled back by around 25% over the last six months. As a result, the shares now trade on a forward P/E of 33, falling to 24 times next year’s estimated earnings. At that valuation, I believe SMS is worth a closer look.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Smart Metering Systems. 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.

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