Like most of the mining sector, FTSE 100 listed Chilean copper specialist Antofagasta (LSE: ANTO) is at the mercy of global economic sentiment in general, and China’s fortunes in particular.
Trumped!
China is the world’s biggest importer of natural resources, but that source of demand is threatened by President Donald Trump’s trade war. The Antofagasta share price has tumbled more than 13% in the last month as investors have grown nervous about the slowing world economy and lack of progress towards a trade deal.
It is flat today despite a positive half-yearly report showing EBITDA earnings up 44% to $1.3bn, helped by a 19.1% increase in revenue to $2.5bn, due to higher copper sales volumes and by-product revenues. That helped to make up for a 6.3% drop in the realised copper price.
CEO Iván Arriagada hailed today’s “robust” results with higher production across all operations, and copper up 22%. He expects this to continue with “another year of record copper production”.
Costs and competition
Antofagasta’s Cost and Competitiveness Programme is yielding savings and despite the uncertain outlook and trade talk concerns, Arriagada said Antofagasta “continues to be in a strong position generating solid cash flows and improving returns”.
The £8bn group paid an interim dividend of 10.7 cents per share, equivalent to 35% of net earnings, and a rise of 57.4% on last year’s interim. However, the forecast yield of 3.2% is a little disappointing against a FTSE 100 average of around 4.3%, even with cover of 1.9.
Antofagasta trades at 15.5 times forecast earnings, so it isn’t hard to find cheaper FTSE 100 stocks paying far more generous levels of income. While City analysts expect a 22% rise in earnings this year, they anticipate a 2% drop in 2020. Copper is a bellwether for a troubled global economy and the stock isn’t trading at enough of a discount to tempt me, given today’s macro and political challenges.
Play it again
FTSE 250-listed gaming software provider Playtech (LSE: PTEC) has given investors a rough ride as profit warnings hit sentiment and its stock fell 60% measured over two years, and today brought little to reverse negative sentiment.
The £1.19bn group saw half-yearly profits before tax dropping 77% year-on-year to €28m, as distribution costs exactly doubled from €246m to €492.8m. Management slashed its dividend by 50%, from 12.1 euro cents per share to 6.1 cents. Yet the market response was reasonably benign, with the Playtech share price holding steady today.
Tech play
On the plus side, revenue rose 69% to €736.1m, boosted by last year’s acquisition of SnaiTech, which posted 26% growth in adjusted EBITDA to €74.7m. Management is sticking to full-year guidance, which suggests that adjusted EBITDA will fall to between €390m and €415m. That is despite a drop in forecast revenues at its Asian business, from €150m at the start of the year to €115m.
However, Playtech does now offer a juicy forecast yield of 6.3%, with cover of 2.1, coupled with a bargain valuation of 7.3 times forecast earnings. Until I saw those figures, I wasn’t tempted to recommend the stock. Now I think it might just be a good recovery play. Or you might prefer these FTSE 250 rivals.