The Investment Column: Dig in to Kazakhmys for a stake in a copper-bottomed prospect

Jessops; Thus
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The Independent Online

Anyone who bought into Kazakhmys at the company's float six months ago will be very happy with themselves.

Shares in Kazakhstan's biggest copper miner have now almost doubled in value. Their 9.2 per cent rise to 1,042p yesterday followed solid annual results and a bullish outlook statement from the company.

Kazakhmys told investors: "Supply and demand fundamentals suggest continued copper price strength throughout 2006." Of course it would say that. Should the soaraway price of the commodity suffer a reversal, its profits would quickly evaporate. However, as far as pure copper players go, Kazakhmys is a class act. From a geographical point of view, the company is well located. The fact that Kazakhstan borders China allows it to cash in on the rapid industrialisation of the emerging superpower.

It also boasts a very low cost base. Labour in this part of the world is ultra cheap while the by-products of its copper mining business - gold, silver and zinc - are to die for. Kazakhmys can sell them and in this way lower the cost of producing copper.

The company's London listing - it is the first firm from the former Soviet Union to enjoy FTSE 100 status - gives it prestige and will allow it to access global debt markets at reasonable rates. Investors should not be surprised if over the coming year it takes advantage of this and picks up prime local resource assets at a knockdown prices.

Kazakhmys posted net income of $538.8m (£309m) for 2005. This is forecast to rise to $740m by the end of the current year. If the copper price remains at current levels this estimate will be made to look very conservative. Buy.

Jessops

The camera retailer Jessops confirmed yesterday that it is firmly back on the growth path. It unveiled a pleasing first-half performance with sales for the 25 weeks to 26 March up 6.5 per cent, ahead by 2.6 per cent on the like-for-like basis. These figures were driven by strong trading over Christmas, when sales soared 13 per cent for the five weeks to 1 January, a 9.4 per cent increase on a like-for-like basis.

All this is a far cry from the disaster that hit Jessops last year. Just three months after it floated, it issued the mother and father of all profits warnings. In wake of the alert the company lost half its stock market value. To blame for the disaster was the consumer slowdown, competition from camera phones and pressure from supermarkets, which are increasingly impeding on its turf.

After hitting an all-time low of 72p in June, Jessops shares have recovered strongly. Yesterday they closed at 114.75p, up 5.75p on the day. The turnaround at the group has been thanks to its increasing focus on higher-margin areas such as exclusive merchandise, developing and printing digital photos and own-brand accessories. Jessops is once again winning market share - in January it controlled 18.6 per cent of the market, up from 15.3 per cent a year earlier. In turn, this leading position helps the group gain better deals from the main camera manufacturers.

Even after yesterday's share price rise, Jessops trades at just 10 times forward earnings. That is a sharp discount to the wider sector, which is unjustified. Buy.

Thus

The fixed-line telecoms business is not a good one to be in these days. The sector is fiercely competitive so life is not easy for any operators but if, like Thus, you happen to be one of the industry's minnows it is a miserable experience.

The group is trying to put a brave face on it. Yesterday it put out a trading statement which assured the City that it is on course to achieve sales of more than £370m and earnings before interest, tax, depreciation and amortisation of £40m in 2006. It said that the integration of Your Comms, which it recently bought, is going well and should be able to produce cost savings of more than £25m once complete.

All this shows the company is surviving amid tough trading conditions, but not flourishing. This year will see it generate free cashflow for only the second time in its history. It is from free cashflow that dividends are paid, but Thus is unlikely to have anywhere near enough to reward its investors in 2006. In fact it is unlikely to be in a position to pay a dividend any time soon. Meanwhile, trading conditions are unlikely to improve - if anything, they will get more difficult. At 165.5p, the stock should be sold.

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