Kopore Metals Limited (ASX:MNE), a AUDA$17.37M small-cap, operates in the basic materials industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Basic material analysts are forecasting for the entire industry, a strong double-digit growth of 25.15% in the upcoming year , and a massive growth of 41.20% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Today, I will analyse the industry outlook, and also determine whether MNE is a laggard or leader relative to its basic materials sector peers. See our latest analysis for MNE
What’s the catalyst for MNE’s sector growth?
As a whole, the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be vastly competitive and consolidation seems to be a inevitable. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the previous year, the industry saw growth of 6.76%, beating the Australian market growth of 5.37%. MNE lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means MNE may be trading cheaper than its peers.
Is MNE and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 14x, relatively similar to the rest of the Australian stock market PE of 17x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 11.83% on equities compared to the market’s 11.92%. Since MNE’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge MNE’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? MNE recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto MNE as part of your portfolio. However, if you’re relatively concentrated in metals and mining, you may want to value MNE based on its cash flows to determine if it is overpriced based on its current growth outlook.