Key points
- Gold output increased 24% for the three months to 31 December 2021, year-on-year
- The company has a lower forward P/E ratio than a major competitor
- It is investing $471m in a new mining project
With the developing situation in Ukraine and Russia, the share prices of many companies operating in the region plummeted yesterday. Polymetal International (LSE: POLY), a FTSE 100 gold miner, fell 40%. With mines across Russia and Kazakhstan, investors became nervous that production would grind to a halt or Western sanctions would target the company. I am trying to look beyond this issue to assess the firm’s performance over a longer period, although I’m not ignoring the severity of the conflict. This is with a view to holding the shares for the long term. Let’s take a closer look.
A FTSE 100 business with a strong track record
In a recent trading update for the three months to 31 December 2021, Polymetal stated that gold production was up 2% year-on-year. Indeed, this was 5% above guidance. Furthermore, gold output increased 24% in comparison with the same period in 2020. On the other hand, revenue declined by 6% year-on-year. The firm explained that this was largely due to lower gold prices during the period. I expect this to change in the next quarter, given the rise in the gold price recently.
The business also has a strong earnings record. Between the calendar years 2016 and 2020, earnings per share (EPS) grew from ¢90 to ¢228. By my calculations, this amounts to a compounding annual EPS growth rate of 20.4%. As a potential investor, I find this both impressive and consistent.
A cheap stock at current levels?
By taking a look at the company’s price-to-earnings (P/E) ratio, I may better understand the extent to which it is under- or overvalued. Indeed, Polymetal has a forward P/E ratio, based on forecast earnings, of 9.73. On its own, this doesn’t tell me much. Compared to Barrick Gold, a major competitor, it does seem cheap. Barrick Gold has a forward P/E ratio of 23.04. For me, this is an indicator that Polymetal may indeed be undervalued at its current price.
Of course, I can’t ignore the impact of the Ukraine crisis on this firm. Yesterday the share price fell 40% on fears of military action affecting production and the possibility of sanctions. While it is possible that the business could be further impacted by these events, the company’s long-term track record is strong. Indeed, management recently signed on a deal to invest $471m in the Veduga mine project in southern Russia. This is estimated to yield 200,000 ounces of gold per year for 21 years.
While I won’t be buying this stock right now, I will be keeping a close eye to see if revenue begins to increase. This is likely, given the rising price of gold. I will certainly not rule out a purchase in the future.
Andrew Woods has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
