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 Eurasian Natural Resources
I assess each company on several ratios:
- Price-to-earnings (P/E) ratio: Does the share look like a good value when compared to its competitors?
- P/E-to-growth (PEG) ratio: Does the share look like a good value when factoring in predicted growth?
- Yield: Does the share provide a solid income for investors?
- Dividend cover: Is the dividend sustainable?
So let's look at the numbers:
|
Price |
3-Year EPS Growth |
Projected P/E |
PEG |
Yield |
3-Year Dividend Growth |
Dividend Cover |
|
|---|---|---|---|---|---|---|---|
|
Eurasian Natural Resources |
270 pence |
88% |
7.8 |
<0 |
4% |
125% |
3 |
The consensus analyst estimate for this year is EPS of 34.6 pence (down 66%) and a dividend of 11 pence per share (down 39%).
Trading on a projected P/E of 7.8, Eurasian appears to be more expensive than its peers in the mining sector, which are currently trading on an average P/E of 5.4. However, Eurasian's P/E ratio and negative growth rate gives a PEG ratio of less than 0. With a negative result, the PEG ratio cannot help with my analysis.
Supporting a 4% yield, the dividend is above average for the mining sector, which currently offers a 3% average yield. Eurasian also has a three-year compounded dividend growth rate of 125%. However, the growth rate is coming under pressure this year due to falling revenue. Indeed, the first-half payout has already been lowered by 59%!
Nonetheless, the dividend is nearly three times covered.
Historical growth has been strong. What now?
Over the past few years, Eurasian has seen explosive growth. After reaching a high of 1,250 pence in 2010, the company's share price is now trading near a five-year low.
In my view, the depressed share price is a result of rapidly falling revenue. Eurasian generates 72% of its revenue from ferroalloys and iron ore, and these commodities have seen sharp price falls due to the deteriorating worldwide economic outlook.
In an attempt to offset these declining commodity prices, Eurasian has increased capital spending to improve output. However, this spending is putting significant pressure on the company's balance sheet: Finance costs were up 200% in the first half of this year.
It is not all bad news, though. The company has been investing heavily within its power-generation and freight divisions. While these divisions only account for 12% of revenue, I think they are significantly more profitable than the mining divisions and providing Eurasian with a more stable revenue stream.
In my view, Eurasian has more risk than most in the sector due to its high dependence on weak iron ore prices. With finance costs rising sharply, profits currently falling, and a trailing dividend nearly 40% lower than last year, I believe now does not look to be a good time to buy Eurasian at 270 pence.
More FTSE opportunities
Although I feel now may not be the time to buy Eurasian, I am more positive on the blue chips highlighted in "The Market's Top Sectors." In this special report, three Motley Fool Share Advisor analysts each study a favorable industry and spotlight a particular share to consider for this year and beyond. You can read "The Market's Top Sectors" today by requesting the report for free. But hurry -- the report is available for a limited time only.
In the meantime, please stay tuned for my next verdict on an FTSE 100 share.
