Are you tempted by the Sirius Minerals share price? The FTSE 250 company’s North Yorkshire potash mine has the potential to be a cash cow operating on a global scale. It could make investors rich… eventually.
However, there’s a long road ahead, and I can still see a number of risks for shareholders. I think it will be at least five years before the mine turns a profit. Until then, the SXX share price is likely to remain volatile.
In my opinion, there are better opportunities for investors elsewhere in today’s market. Here, I’m going to look at two stocks I think are of more immediate interest.
Ahead of expectations
I’m staying with the mining theme for my first pick. For investors who’ve bought at the right times, Egypt-based Centamin (LSE: CEY) has delivered attractive returns. I think we may be seeing another such buying opportunity.
During the first quarter of the year, the company reported a better-than-expected set of mining results. Gold production at the Sukari mine was 116,183 ounces during the period, ahead of forecasts for 105,000oz-115,000oz. Costs were at the lower end of the firm’s previous guidance and the grade — or gold content — of the ore extracted from the firm’s underground mine improved.
A turning point?
Back in February, I flagged up risks at Centamin, pointing out costs had risen and gold production had fallen for a number of years. However, news flow since then has generally been positive and the price of gold has risen significantly.
Centamin should benefit directly from the higher price of gold, as the company doesn’t hedge any of its output. This is made possible by a solid financial position — at the end of March, the company had cash and liquid assets of $332m and no debt.
The shares don’t look cheap, on 19 times forecast earnings. But the dividend yield of 4.6% should be backed by surplus cash and the company is due to release guidance for 2020 and 2021 in the next few weeks. If positive, this could provide further support for the shares. I’d view Centamin as a speculative buy.
A great comeback story?
Superdry (LSE: SDRY) interim boss Julian Dunkerton is back in the hot seat at the fashion retailer he co-founded in 2003. I think the problems he faces can be explained with a simple comparison:
|
|
2015 |
2019 |
|
Sales |
£486.6m |
£872m |
|
Underlying pre-tax profit |
£63.2m |
£41.9m |
That’s right. The company’s sales have risen by 80% since 2015, but underlying profits have fallen by 34%. Profit margins have collapsed.
This suggests to me Superdry’s product ranges have lost their appeal, resulting in heavy discounting. Dunkerton certainly believes the management team who took over following his departure are largely to blame for the company’s problems.
One of the business’s previous hallmarks was that discounting was limited. Dunkerton plans to return to this with fresh design and a constant flow of new products, which he believes will support full-price sales and a premium brand message.
I could fill some space here with a discussion of the group’s finances. But to be honest, I don’t see much point. If Dunkerton can deliver his promise to return the company’s profit margins to 10%+ in three years, then I believe the shares are very cheap at the current price. If he fails, then further problems seem likely.