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Eurasia Natural Resources is a Kazakhstan based natural resources company with operations in exploration, mining, processing, power generation, logistics and marketing. The company has a strong focus on Iron Ore, Bauxite, Ferroalloys and Manganese.
Eurasian Natural Resources Corporation still a ‘buy’, says Citi
June 23 2011, 11:49am
Eurasian Natural Resources Corporation (LON:ENRC) remains a ‘buy’ for broker Citi despite recent boardroom turmoil and a recent softening of the spot price for ferrochrome denting earnings projections.
The broker says that while weakening of the spot price for ferrochrome – an alloy of chromium and iron and a key business for ENRC – has led to a 5% downgrade in its 2011 earnings for the group, this has had little impact on its valuation for the stock or its 2012-2013 forecast.
Indeed its 2013 earnings projection has increased a little on better recovery assumptions for the group’s copper operations where oxide production and plant are being upgraded.
The broker, furthermore, argues that ENRC’s share price of 744p (as at 21 June) implies zero growth for the company. Even this scenario, however, suggests a valuation of 900p for the shares.
The recent high profile boardroom row which led to the acrimonious departure of a number of board directors, including Sir Richard Sykes, has clearly undermined sentiment over the stock.
Citi analysts say that while the market’s penalising of the company on the quality of its corporate governance is certainly “fair”, the stripping of value away from the company’s growth, as reflected by the shareprice, is ‘unfair’.
Citi believes there are a few catalysts that could reignite investor interest in the shares. The asset catalysts include completion of feasibility studies and increased disclosure on the group's plans for expanding operations in Brazil and Africa expansion. Meanwhile, a corporate governance review should affirm compliance with the FSA’s combined code and stabilise the share price.
The broker argues that volume growth remains at the heart ENRC’s equity story. It is currently forecasting 74% copper equivalent volume growth for the group from 2012 to 2015, mainly in ferroalloys and iron ore. For copper itself it reckons there is some upside to its forecasts – it is currently assuming little volume on this front.
Late morning Eurasia shares were down 17.75p to 714.75p.
