Updated views on the sector and key picks post reporting season:
- A good year, despite challenges: Most companies provided positive updates through FY23 and share prices of companies on our list climbed on average 44% from June 2022 to July 2023.
- Mixed market response: Nearly all results were in line or better than guidance and/or expectations. The initial share price reactions to results were mostly favourable, but have edged lower since, providing some well-priced buying opportunities.
- Focus on back end of mining life cycle:
- In the short-term a tighter capital raising environment implies challenges for companies exposed to the early stages in the mining life cycle. We prefer production-exposed businesses.
- Longer-term likely and potentially significant supply shortfalls across several commodities implies a strong environment for miners and all their service providers.
- The case for contract miners: Rigour around margin, capital intensity, free cash flow and return on capital is delivering results. This has not been reflected in share prices. The widening gap between capital-light and capital-intensive companies’ PEs is unwarranted and provides opportunities.
- Key picks: Both Perenti (PRN) and GR Engineering (GNG) have seen unwarranted share price falls post results. They are both quality businesses and have good prospects following a solid FY23 performance. We see significant upside. See latest company research here and here.
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