The rally across global equity markets that started a month ago petered out shortly after it started. But FTSE 100 stocks have managed to largely cling onto these gains despite investor confidence remaining über-fragile. Britain’s blue-chip index remains up 15% since the lows of 23 March.
The rise printed by some Footsie constituents in that time has been rather more impressive, however. Take Polymetal International (LSE: POLY). The Russia-centric gold digger has soared a whopping 42% in value in just over four weeks on expectations precious metals will remain well bought.
Rate cuts
Intense fears over the worldwide pandemic, and growing expectations of a painful U-shaped economic recovery, are reckoned by many to keep investment demand for gold on the boil for some time yet. The yellow safe-haven commodity hit fresh seven-year peaks of around $1,750 per ounce just last week.
It’s very likely gold will take out the decade-old record peaks near $1,920 per ounce later in 2020. It’s not just fears of macroeconomic meltdown that could fuel flight-to-safety buying. The hard currency will benefit from more rate cutting to support the ailing global economy, a situation that’ll raise fears over the true value of traditional fiat currencies.
Chinese, Indian, Mexican and Filipino central banks are just a handful to have reduced their benchmarks in recent days. More reductions are tipped from major institutions in the US, UK, Europe in the coming weeks too, moves that would throw further fuel onto the fire of mass rate-cutting.
Production powers up
It’d be a mistake to think Polymetal’s share price ascent is just down to the soaring gold price. Even though this was responsible for pushing company revenues 9% higher between January and March. The FTSE 100 digger is also making terrific progress operationally. And encouraging news on the production front since the end of March has also driven intense investor buying.
Polymetal saw gold equivalent production rise 5% in the three months to March (to 391,000 ounces), driven by soaring output at its flagship Kyzyl mine in Southern Russia. Production here rocketed 39% year-on-year to an impressive 109,000 ounces.
That excellent first-quarter result prompted the Footsie business to affirm its full-year guidance. It expects to produce 1.6m ounces of the shiny stuff in 2020, in line with last year’s result.
A FTSE 100 star
The promising outlook for gold prices provides a solid base for Polymetal’s share price which, as I type, is back around record peaks above £16 to scale new heights. On top of this, the FTSE 100 firm’s mega-low valuations provide the scope for more meaty gains.
City analysts expect annual earnings to rocket by almost a third in 2020. It’s a projection that leaves Polymetal carrying a cheap forward price-to-earnings (P/E) ratio of around 11.5 times.
But this isn’t all. The number crunchers don’t expect the mining giant to cut dividends — unlike much of the broader market — and so its prospective yield sits at a mighty 5% too.
Despite recent gains, I reckon this FTSE 100 company is a star buy for 2020.
