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A cheap FTSE 250 share I’d buy for my Stocks and Shares ISA

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I’m on the lookout for top UK shares to add to my Stocks and Shares ISA. And one particular FTSE 250 company has attracted my attention. I recently explained why swelling inflation bodes well for gold producers like Petropavlovsk (LSE: POG). News of rocketing consumer prices in the States isn’t the only reason why inflationary fears have risen in recent hours, however, and boosted the profits outlook for gold diggers.

On Tuesday Andy Haldane announced that he was leaving his role as chief economist for the Bank of England’s rate-setting Monetary Policy Committee. Haldane has been publicly calling for interest rates to rise in order to head off what he calls the inflation “tiger”. The move could thus set the stage for rates to stay lower for longer.

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Inflation is moving higher on a global level. And as a result I think getting some exposure to gold is a great idea. Petropavlovsk in particular has grabbed my attention as City analysts expect earnings here to soar almost 150% in 2021. This leaves the FTSE 250 company trading on a forward price-to-earnings growth (PEG) ratio of 0.2. Conventional investing wisdom dictates that a reading below 1 might suggest that a UK share is undervalued.

An aerial view of one of Petropavlovsk's assets

Remember the risks

On top of this, at current prices Petropavlovsk carries a 1.4% dividend yield for 2021. This might not make the Russian digger the most generous dividend-payer out there. But remember that buying bars or coins, or investing in a gold-backed financial instrument like an ETF, offers no dividend income at all. So in my opinion, that forward yield adds a tasty sweetener.

But investing in mining shares can be extremely risky. Exploration and production levels can unexpectedly take a hit, putting profits forecasts in severe jeopardy. And there are a broad number of common problems that can smack operations at the likes of Petropavlovsk, from weather-related interruptions and mechanical breakdowns to labour issues.

Petropavlovsk’s profits are also at risk from extreme exchange rate movements. The FTSE 250 share reports in US dollars, the same currency in which gold tends to be traded. However, because the company produces gold from Russian soil, any rise in the rouble versus the dollar pushes costs higher relative to sales. What’s more, a proportion of its administrative expenses are denominated in sterling. This can create extra adverse currency effects when the rouble moves against the British pound.

A top FTSE 250 share

Despite these risks, though, I still think Petropavlovsk is an attractive UK share to buy today. The outlook for gold prices remains pretty sunny in my opinion. I also like the company’s impressive track record of production, which allowed total gold production to rise 6% year on year despite coronavirus-related disruptions. Besides, at current prices I think the FTSE 250 business could be considered too cheap for me to miss.

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Royston Wild 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.

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