Anglo Pacific (LSE: APF) reported “a very strong start to 2017” in its first-half results this morning. The shares initially jumped higher but soon retreated back towards yesterday’s closing price. At around 120p, the mineral royalties group is capitalised at £217m and sits on a cheap earnings multiple and juicy dividend yield. I continue to rate the stock a buy.
Royalties roll
During the first half of the year, Anglo Pacific benefitted from higher commodity prices, favourable exchange rates and increased mining within its private royalty acreage at Kestrel.
I calculate trailing 12-month adjusted earnings per share (EPS) of 15.77p, giving a price-to-earnings (P/E) ratio of just 7.7. On a statutory basis, H1 EPS was negative. This was due to non-cash charges (mainly related to resource depletion and pricing assumptions), so I’m happy to use the adjusted number as it better reflects the company’s strong cash flows.
Free cash flow of £18.9m in H1 alone is well above the last 12 months’ dividends of £10.1m (6p a share) and supports analysts’ forecasts of a payout of 7p this year, for a prospective yield of 5.8%.
The board said today that commodity prices are ahead of expectations so far in Q3 and that royalty revenues are continuing to benefit from weak sterling versus the US and Australian dollar. This bodes well for the remainder of the year.
Looking further ahead, I note that Anglo Pacific is debt free and has ready access to between $30m and $40m of cash and borrowing facilities for further royalty investments. The board told us that making such investments “is very much the focus for the second half of the year.” This should further strengthen royalty streams for 2018 and beyond.
Bargain brew
Also trading on a cheap earnings multiple with sparkling dividend yield is FTSE 250 brewer and pubs group Greene King (LSE: GNK). Its shares were trading not far off 1,000p towards the end of 2015 but are currently changing hands for 660p. I believe now could be a good time to buy a slice of this £2bn business.
The company posted adjusted EPS of 70.8p for its financial year ended 30 April, giving a P/E of 9.3. Meanwhile, a 33.2p dividend for the year is forecast to rise to 34p this year, providing a prospective yield of 5.2%.
The reasons for Greene King’s current depressed share price and the reason I’m not put off buying the stock at the present time are succinctly summed up in a comment by chief executive Rooney Anand. “Our performance has been achieved against a demanding backdrop of increased costs, weaker consumer confidence and increasing competition. While I expect these challenges to intensify over the next few years, Greene King has a very strong track record of delivery in tough market conditions.”
In light of this track record, and in view of the group’s scale, robust balance sheet and strong cash generation, I believe the depressed share price, low P/E and high yield represent a generous offer by the market.