The mining industry is prone to swinging from wild, reckless optimism to despairing panic in almost precisely the amount of time it takes to build a mine. Therefore, when you find companies promising to dole out cash to shareholders while pursuing growth in a cautious manner, it is worth taking a look.
Centamin controls the Sukari goldmine in Egypt and is drilling holes to see what it can find in Burkina Faso and Ivory Coast. It has no debt, does not hedge its production and the most intense period of investment at Sukari is already behind it. Those factors meant Centamin was ideally placed to take advantage of the surge in gold prices in the first half of last year. Its shares more than doubled in 2016.
Yesterday the company lifted its dividend guidance, saying that it would pay at least 30 per cent of the cash it generated once it had invested in sustaining capital expenditure. That represents an improvement on the 15 per cent to 30 per cent range it had promised.
If Centamin strikes gold in west Africa, it is promising not to splurge a fortune. It says that it can start small and lift production by investing out of cashflow. This will protect shareholders from those geologists and engineers who tend to see the world through gold-tinted spectacles.
So Centamin is making all the right sounds. But is there a case for buying a gold stock in the first place? There is a stronger case for buying a goldminer than buying the metal itself. Gold, as its critics like to say, is a pet rock. It will not pay you a dividend, though nor will it squander your savings with an ill-considered acquisition in a jungle somewhere. A well-managed goldminer, such as Randgold or Centamin, is a better bet than an exchange-traded fund promising exposure to gold prices or to gold bars or coins.
But should your portfolio be exposed to gold prices at all? There are good arguments on either side. A stronger dollar and rising bond yields are bad for gold. Global insecurity, on the other hand, is good. Rising US interest rates are probably priced in, so perhaps gold’s safe-haven credentials are due a comeback.
Randgold, the FTSE 100 Africa-focused group, is the premium choice. It is also promising to step up investor payouts, but its valuation leaves little room for setbacks. Centamin is worth a look.
MY ADVICE Buy
WHY A well-managed company that can give exposure to gold prices while offering a dividend
Paysafe
As many business people wound down and prepared for the Christmas break last month, there was a flurry of activity at the headquarters of Paysafe Group.
Shares in the digital payments company fell by almost a fifth on December 13 when an American short-seller published a series of allegations. Spotlight Research’s online report claimed the company appeared to be enabling illegal gambling and Chinese capital control evasion. Paysafe insisted that “all material information” within the report was “either factually inaccurate or has been previously disclosed”.
A week later, the group unveiled a share buyback programme of up to £100 million. Joel Leonoff, the company’s president and chief executive, said that the move would “enable us to capitalise on current market opportunities without compromising our pursuit of bold M&A with a strong strategic fit,” he added. PaySafe has not shied away from acquisitions over recent years. It moved into the FTSE 250 in 2015 when it acquired Skrill, a rival, via a €1.1 billion reverse takeover.
The group had a strong first half in 2016, with revenues rising 118 per cent to $486.7 million and statutory pre-tax profits reaching $74.6 million, up from $4.6 million in 2015. It will release a trading update for the full year on Thursday.
The shares faltered at the end of last year, tumbling from 469p to just north of 300p between October and that fateful December day. They finished yesterday at 381 p, up 2¾p, and with ambitious plans for the year ahead their climb may continue.
MY ADVICE Buy
WHY Still some value after hard month when share prices fell
Talktalk
TalkTalk Business has been described as one of the best-kept secrets of the telecoms group, which yesterday announced an offering of £300 million senior notes due in 2022 to reduce debt.
While the consumer side attracts headlines, notably over a 2015 cyberattack that compromised the details of 150,000 customers, TTB accounts for a third of group revenues, has grown at an average of nearly 7 per cent over the past three years and fits nicely with the consumer business, filling the network during the daytime.
Megabuyte estimates that TTB is the sixth-largest provider of communications services to UK businesses and the fourth-largest for fixed line. As JP Morgan Cazenove pointed out in a note downgrading the shares to “underweight”, while total revenue growth has been falling, there has been a pick-up in corporate revenue growth in the first half of the fiscal year, thanks in part to products such as Ethernet.
At 172¾p, TalkTalk shares are well below their mid-2015 peak of in excess of 400p, although a rise in the last month suggests they are worth holding.
MY ADVICE Hold
WHY Underlying strength in its TalkTalk Business unit, which is still enjoying solid revenue growth
And finally...
Good news for Petrofac, the oil services company controlled by Ayman Asfari. The company has landed a $600 million deal to build an liquefied petroleum gas plant in Oman. The plant, which includes a pipeline, jetty and storage facilities, represents a further boost for the group, which has been in Oman since 1988. It also offers fresh evidence that an oil industry spending drought appears to be ending, with several projects being announced in recent weeks. Petrofac shares were up over 3 per cent yesterday at 927½p.
