Please ensure Javascript is enabled for purposes of website accessibility

Should I Buy Polymetal International?

By Harvey Jones - Apr 10, 2013 at 3:57PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Harvey Jones weighs up Polymetal International.

LONDON -- I'm window shopping for shares again, and there are plenty of goodies for sale. Should I pop Polymetal International (POLY -3.04%) into my basket?

Go West, go East
Russian gold and silver producer Polymetal International sought the greater security of a FTSE 100 listing in 2011 in a bid to attract a wider investor base, boost liquidity and reduce political risk. I'm tempted by the prospect of Western standards of corporate governance and Eastern growth potential. Should I buy it?

Polymetal International's share price has plummeted nearly 25% over the past six months, but publication of its preliminary 2012 results earlier this week sparked a sudden 6% rebound. That's down to its "strong operational performance", which included a 31% rise in gold production and a 40% leap in revenues to $1.85 billion dollars. Adjusted EBITDA grew a forecast-busting 47% to $918 million. Polymetal also fulfilled its promise to pay 30% of net earnings to investors (up from 20% last year), paying 31 cents a share (on top of a special dividend of 50 cents in January). Management has floated the idea of making a special payment every December, if cash flow allows. Given its strong cash position, Polymetal could be a nice little income earner.

Gold bugs
This week, Polymetal also announced that it had completed its purchase of the Maminskoye gold deposit in Sverdlovks, Russia, which it claims has "substantial exploration upside", and could yield between 80,000 and 120,000 ounces of gold a year. That's another advantage of a FTSE 100 listing. It makes equity-based acquisitions easier.

Polymetal is sitting pretty, thanks to its strong financial performance, stable cash flow, solid margins and healthy return on capital, and is already on track to meet its gold production targets for 2013. Commodity stocks have struggled in recent months, but that could make now a buying opportunity. Polymetal currently trades at 13.2 times earnings, and although that isn't dirt cheap, you aren't paying over the odds, either. You get a forecast yield of 3.7%, and an exciting dividend policy. Projected earnings-per-share growth is a shiny 56% this year, followed by 15% in 2014.

Chinese arithmetic
Your decision to buy will partly depend on how bullish you are about the global recovery. But with central bankers competing to pump liquidity into the economy, and Chinese domestic consumption rising, the tide could be moving in favor of commodities. Brokers rate Polymetal. Canaccord Genuity names it a buy, with a target price of £14, Morgan Stanley is overweight on a target of £11.25. You can currently buy it for £9.

As with every miner, you have to understand the risks. This is a volatile sector. Polymetal is still relatively new to the FTSE 100 index, while three major shareholders continue to dominate its board. The gold price is down 10% over the last six months, and any serious decline could hit investor sentiment. But if you think metals are set to get more precious over the next few years, Polymetal could prove a golden investment.

If you're planning a golden retirement, you need to have read this unmissable Motley Fool special report "5 Shares to Retire on". This free report names five FTSE 100 favorites to secure your retirement. To find out more, download this report now. It won't cost you a penny, so click here.

link

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Polymetal International plc Stock Quote
Polymetal International plc
POLY
$255.00 (-3.04%) $-8.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
349%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.