US Edition Randgold Resources
£36.85 -349p
Questor says BUY
Analysts' views on the prospects for Randgold Resources vary wildly. According to Bloomberg data, the same number of analysts have buy ratings on the stock as have sell stances. Following the second-quarter numbers released on Tuesday, Questor remains firmly in the buy camp.
The main reason that analysts have a sell stance on the shares is because of their high rating. The shares are trading on a December 2009 earnings multiple of 70 times. This is, clearly, extremely high.
However, production is expected to jump substantially over the next few years and the prospective multiple falls to 32 in 2010 and 22 in 2011.
Second-quarter numbers were mixed. From a shareholder perspective, the group's announcement that it is placing 5m shares worth £200m is a negative, but the dilution is relatively small. The company has a market cap of £3bn, so the dilutive impact is not a disaster.
The company plans to use the cash to fund feasibility studies and the development of its Gounkoto and Massawa projects. Some of the funds will potentially be used for acquisitions.
This is an important development because the company has previously not gone down the acquisition route, preferring to explore and develop its own mines.
However, as noted above, the company has highly-rated paper and it makes good business sense to use its shares to make strategic purchases.
The miner has joined forces with AngloGold Ashanti to offer C$546m (£306m) for Aim-listed Canadian group Moto Goldmines. This trumped a previous offer from Red Back Mining – and the company has another week to increase its offer.
Moto has a resource base of about 22.5m ounces. Randgold is offering 0.07061 of a Randgold share for each one in Moto or C$4.47 for each Moto share. The cash part of the offer will be paid for by AngloGold.
In an interview with Bloomberg TV, Mark Bristow, Randgold's chief executive, said now was the right time to move into the Democratic Republic of Congo, where Moto's assets are based. He said Moto had one of the largest undeveloped gold resources around.
Accepting that operating in the Congo was difficult, he noted that the country was undergoing a transition rather than a civil war and the region was in a similar position to West Africa in the early 1990s.
If the Moto acquisition is successful, the group will use some of its cash for the development of the Canadian group's assets.
Pre-tax profits in the three months to June 30 came in at $23.4m (£14.1m), down from $26.8m in the corresponding quarter last year but up from $19.3m in the first quarter of the year.
Total gold production rose by 10pc to 121,685 ounces and gold prices increased slightly. Total cash costs per ounce were up 4pc at $477. The group said it was on track to meet this year's production target of 490,000 ounces.
If the company continues to use its paper to snap up assets like Moto, growth should accelerate even further over the medium term. Shares in Randgold, which were recommended at £33.62 on April 26, remain a buy.
Croda
550p -22½
Questor says BUY
The market reacted badly to Croda's interim numbers and the shares closed 4pc lower but Questor believes the numbers were actually quite good.
The market was concerned after the group's first-half profit fell 14pc to £43.6m because of falling glycerine prices and relative weakness in industrial specialties.
However, none of this is new information. The company has highlighted to the market the effect of last year's spike in glycerine prices many times and it is obvious that industrial chemicals operations will be hit by the downturn.
Positively, industrial specialties broke even in the second quarter and management indicated that business is improving. Management is cautious though, because the company does not have a great deal of visibility at the best of times because of the relatively short lead time on orders. However, the fact that things are improving is good news.
The company also made progress on the debt front, with net debt in the period falling £47m to £351.1m. Some of the reduction was down to currency movements, but £22m of the reduction was contributed by cashflow – after a dividend payment of almost £20m was made to shareholders. This shows the resilience of the business even when times are gloomy.
Management increased the interim payment by 4.8pc to 6.5p. The shares go ex-dividend on September 2 and the payment will be made on October 9. This dividend payment will cost the company about £9m. The cash generation in the first half covered last year's final dividend and allowed for a reduction in debt – so this year's pay-out can be regarded as secure.
Croda will benefit from the cyclical upturn when it happens because through its industrial specialties operations, it has strong defensive qualities and a secure dividend, although the shares are yielding just 3.7pc, so there is scope for further increases when conditions improve.
The dividend is covered around twice by earnings. The shares are trading on a December 2009 earnings multiple of 11.2 times and are up 40pc since their initial recommendation on December 9. Buy.