Copper miner worth holding on to

RoyalBlue's bull run leaves it fully valued; Country & Met is building on solid foundations
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The Independent Online

Andronico Luksic is one of the world's richest men. The Chilean businessman seized control of Antofagasta in 1979 and since then he has made a lot of money for shareholders. Not least for himself. He and his family control 64 per cent of the shares. This Chilean trading company has been listed in London since 1888, but Mr Luksic has reshaped it as a pure copper miner. He has caught the wave of swelling commodity prices, and copper itself hit a six-and-a-half year high yesterday. Now the company's highly rated shares look set to be carried into the FTSE 100 when the index is reshuffled next month.

Can it stay there, or will it be a one-quarter wonder similar, in its own way, to the tech entrants of 2000? Certainly, plenty of people express fears of a speculative bubble building up in the commodity markets. Putting "China" into a statement is akin to affixing ".com" to a name of old. Yet there is real demand from that country, which is both sucking in manufacturing orders for products made from copper, and building an infrastructure for the Olympic Games in 2008. Copper prices are still a fifth below record levels and stockpiles are dwindling as economic growth surges. This year may be the peak year for prices, but there are no signs of a crash.

Antofagasta mines copper from three sites in Chile, and also runs the railway that services mining areas. Production rose 2.4 per cent last year, but a quantum leap awaits permission to expand its biggest mine, Los Pelambres, later this year. The plan is to increase production there by 40 per cent by 2007 - which should take up the slack as the copper price dips.

The City expects profits to be up 70 per cent when it reports annual results on 9 March - the day before the FTSE 100 is rejigged and the last chance Antofagasta has to slip up. We (too cautiously) advised holding the shares a year ago. Though they have risen to trade at 16 times 2004 earnings, historically high, that seems fair for this point in what is turning into a strong commodity cycle. Hold.

RoyalBlue's bull run leaves it fully valued

Royalblue is one of the most impressive in the software sector, make no mistake. Over the past decade it has built a complex trading system for sale to investment banks and other institutions which trade financial instruments, allowing them to automate much of the process. In the City of London, its Fidessa platform is widely used, and the company has gained a good toehold on Wall Street, too, thanks to contracts with the global titan Merrill Lynch.

The trouble is that, with grim inevitability, its shares have shot up too far, too fast on hopes that spending on IT is about to make some sort of spectacular recovery. At 551.5p yesterday, the stock is too expensive.

The strength of the company's finances are such that it was able to give back £8m in a 25.3p-a-share special dividend and still commit itself to acquisitions to move the group into derivatives trading and fund manager-friendly products.

While its 2003 results yesterday, which showed a 28 per cent fall in profit, reflected the downturn, they were also peppered with optimistic noises on the upturn to come. Royalblue's sales force is seeing more interest - but it will be the second half of the year before this is recognised in the results. The first half will still be grim, partly because of the time it takes to install software for interested customers, partly because consultancy revenues (a disregarded bit of the old business model) are still slipping away.

The shares were toppy when we said avoid six months ago; now on 28 times 2004 earnings, the stock is looking significantly overvalued.

Country & Met is building on solid foundations

The poor will always be with us. It is a reality that has been slow to dawn on housebuilders, but it is dawning. As prices climb upwards, there is desperation at the bottom of the ladder. Country & Metropolitan, which put out a trading update yesterday, is one of the builders that has repositioned itself at the affordable end of the market.

This is not philanthropy. "Affordable housing" is snapped up while the higher end of the market is much more vulnerable to the economic and interest rate cycle. Furthermore, getting planning permission for schemes remains the biggest challenge for housebuilders. Country & Met specialises in brownfield sites - such as its development at a former hospital outside Leeds - so it goes to authorities with a proposal not only to redevelop redundant land but also put up affordable homes on it. You can imagine how well it is received.

Currently based in the north of England, it wants to bring its approach south. It is in this part of the country where, of course, the company's product is even more needed. It says it's spotted land-buying opportunities on the outskirts of London.

Country & Met said interims would meet expectations. The company's shares have performed brilliantly over the last 12 months, closing yesterday at 198.5p, on a forward multiple of just over 6 times earnings. That's in line with the sector, making it a solid hold.

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