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Is Now the Time to Buy Kazakhmys?

LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market.

So right now I am trawling through the FTSE 100 and giving my verdict on every member of the blue-chip index. Simply put, I'm hoping to pinpoint the very best buying opportunities in today's uncertain market.

Today I am looking at Kazakhmys  (LSE: KAZ  ) to determine whether you should consider buying the shares at 570 pence.

I am assessing each company on several ratios:

  • Price/earnings (P/E): Does the share look good value when compared against its competitors?
  • Price/earnings-to-growth (PEG): Does the share look good value factoring in predicted growth?
  • Yield: Does the share provide a solid income for investors?
  • Dividend cover: Is the dividend sustainable?

Let's look at the numbers

Stock Price 3-Year EPS Growth Projected P/E PEG Yield 3-Year Dividend Growth Dividend Cover
Kazakhmys 570 pence 170% 7.3 0.1 2.6% (26%) 10

The consensus analyst estimate for next year's earnings per share is $1.18 (up 70%), and dividend per share is $0.15 (down 12%).

First, I should mention that in a trading update released last month, Kazakhmys reported that profits for 2012 were $368 million, which I believe gives the company an earnings-per-share figure of approximately $0.70. However, Kazakhmys' full-year audited results will not be released until the end of March.

Furthermore, Kazakhmys is facing a potential multibillion-dollar writedown, which could significantly affect the final 2012 results.

Anyway, Kazakhmys is currently trading on a projected P/E of 7.3, slightly cheaper than its peers in the mining sector, which are currently trading on an average P/E of around 10.4.

Kazakhmys' P/E and predicted growth rate give a PEG ratio of around 0.1. However, because of the uncertainty surrounding Kazakhmys' future near-term earnings, I believe this figure cannot help with my analysis.

Offering a 2.6% yield, the company's shares offer an income about level with that of the mining sector's average. However, over the past three years, Kazakhmys' dividend has fallen a compounded 26%, implying that the yield could soon lag that of its peers.

That said, the dividend is about 10 times covered by earnings, giving Kazakhmys plenty of room for further payout growth.

Kazakhmys appears cheap, but is now the time to buy?
Kazakhmys is one of the largest copper miners in the world. However, similar to its peers, Kazakhmys' earnings are coming under pressure from falling commodity prices and rising costs.

Indeed, within Kazakhmys' latest trading statement, the company reported that profits had fallen 70% during 2012.

Furthermore, because of falling profits, Kazakhmys was forced to increase its borrowing to finance planned capital expenditure for the year. Loans increased by 30%, which pushed the company from a net cash position of $19 million to a net debt position of $800 million.

Finally, in addition to falling profits and rising debt, Kazakhmys is facing a potential multibillion-dollar writedown of its investment in Eurasian Natural Resources.

Kazakhmys holds 26% of ENRC, which was originally valued at $3.2 billion. However, because of ENRC's falling share price, Kazakhmys' investment is now worth only $1.5 billion, indicating that Kazakhmys is facing a potential $1.7 billion loss.

So with profits falling, debt increasing, and the risk of a large write-off, I believe now does not look to be a good time to buy Kazakhmys at 570 pence.

More FTSE opportunities
Although I think now may not be the time to buy Kazakhmys, I am more positive on the FTSE 100 share highlighted within this exclusive free report.

You see, the blue chip in question offers a 5.7% income, its shares might be worth 850 pence compared with about 700 pence now -- and it has just been declared "The Motley Fool's Top Income Stock for 2013"!

Just click here to read the report -- it's free.

In the meantime, please stay tuned for my next verdict on a FTSE 100 share.

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