ARTICLES

Kumba

27 January 2020 By PDSNET

Kumba Iron Ore (KIO) is a separately listed 70% subsidiary of Anglo American. It is by far the largest producer of iron ore in South Africa and it exports 94% of the ore which it produces. This makes it substantially a rand-hedge share which is hardly impacted by developments in the South African economy. The main drivers for this share are the international price of iron and the rand. What makes this share interesting is the fact that it trades on a very low P:E ratio of 7,26 and a historical dividend yield (DY) of nearly 10%. In the current financial year (to 31^st December 2019) the company has already paid a dividend of R30.79 per share and it is expected to pay a further R20 per share as a final dividend – making a total of R50.79 per share. This should be compared to the current share price of around R381. This puts it on a forward DY of 13,3% - not a bad return. Obviously commodity shares are volatile because their profitability is hinged to the volatile price of iron. But if you take the view that the world economy, led by America in an election year, is in the throes of an economic boom, then it seems reasonable to bet that the iron ore price will continue to be strong. Of course, there is risk, but we feel that the risk is more than compensated for by the low price of the share. Consider the chart:

Kumba Iron Ore (KIO) January 2014 to January 2020 - Chart by ShareFriend Pro

Here you can see that when the commodity cycle turned in January of 2016, iron ore was no exception. The upward trend line in Kumba since then has been volatile, but it has consistently appreciated for the past six years. There are not many shares on the JSE which are going to pay a dividend which is better than 13% of their share price. Equally, we feel that the upward trend in commodities, including iron, will continue for some time. We see a strong possibility that this share will move back above R500 in the not too distant future – but, of course, there is risk, so a strict stop-loss strategy is recommended.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

Share this article:

PDSNET ARTICLES - JANUARY 2020

The Corona Correction

One of the enduring characteristics of markets is that they over-react. The size of their over-reaction depends on exactly where they are in the cycle and whether sentiment at the time is generally negative or positive. The S&P made a new all-time record high on the day before Martin Luther King Jr Day (20th January 2020) – after a consistent run which has lasted since the beginning of October 2019 – almost four

Kumba

Kumba Iron Ore (KIO) is a separately listed 70% subsidiary of Anglo American. It is by far the largest producer of iron ore in South Africa and it exports 94% of the ore which it produces. This makes it substantially a rand-hedge share which is hardly impacted by developments in the South African economy. The main drivers for this share are the international price of iron and the rand. What makes this share interesting is the

Is Old Mutual Cheap?

Old Mutual (OMU), the remaining piece of a much larger company which split apart recently to release shareholder value, must be seen as a high-quality blue-chip share. In its most recent results for the six months to 30^th June 2019, the company reported adjusted headline earnings per share (HEPS) up 10%. It is a well-diversified, well established company in the financial services industry with a high-quality management

The Discount to Tencent

It is commonplace for investment holding companies to trade at a discount to the value of their underlying assets. This discount is usually around 20% to 30% depending on the assets held. Efforts are often made to “unlock” this value into the hands of shareholders by “unbundling” the assets directly into the hands of those shareholders. Private investors can sometimes score a windfall by buying into an

2020 Prediction

Predicting what will happen on the JSE in 2020 is immensely difficult. There are many variables, each of which is complex in its own right. However, some things appear reasonably clear to us. They are:

• The dominant prediction for 2020 is that Wall Street will continue on its upward journey with the S&P500 breaking a series of new highs during

2020 Prediction

Predicting what will happen on the JSE in 2020 is immensely difficult. There are many variables, each of which is complex in its own right. However, some things appear reasonably clear to us. They are:

• 1. The dominant prediction for 2020 is that Wall Street will continue on its upward journey with the S&P500 breaking a series of new highs during the year. In this process it will go through at least one major correction