Investment Column: Emerging giants will fuel Xstrata's growth

Hot Tuna International; BTG

Our view: Buy

Share price: 818.2p (+54.2p)

Like its rivals, Xstrata's shares have taken a hammering in recent weeks, which has left them down nearly 50 per cent this year.

After nearly doubling its profits last year and increasing them by 25 per cent in the first half of 2011, the recent commodities boom that fuelled Xstrata's bottom-line growth appears to have run out of steam, with prices dropping off severely.

So-called industrial metals, such as nickel, aluminium and zinc, are collectively down by 24 per cent this year. Copper, which is a key part of Xstrata's business as it is used for wiring, has been hit particularly hard, falling by 28 per cent this year.

But yesterday's rally in Xstrata – and in FTSE 100 mining shares in general – suggests that the Anglo-Swiss miner may not be in such bad shape as its share price suggests. It is certainly true that Western economies are in deep trouble, as Europe and the US struggle with debt mountains and austerity measures. Meanwhile, emerging markets may not be quite as robust as had been hoped just a few months ago.

But the longer-term outlook for the key industrial ingredients in which Xstrata specialises is good, with overall demand from emerging markets likely to grow strongly for years to come. Earlier this week, Goldman Sachs scaled down its 12-month forecast for the prices of aluminium, copper, nickel and zinc. However, it still expects the prices to rise considerably, predicting an increase of 20 per cent for nickel and 25 per cent for copper.

Goldman reached its bullish view after concluding that demand from countries such as China and India far outweighs the crisis in the West. And Xstrata is investing billions in developing new projects to enable it to take advantage of a boom that looks likely to continue for a good while yet, albeit it with the odd slump.

Since Xstrata is part-owned by Glencore, there have been rumours that the commodities trader could mount a bid. Whether or not an offer is forthcoming, the long-term outlook alone makes this miner one to buy.



Hot Tuna International

Our view: Avoid

Share price: 0.075p (+0.0025p)

The surfwear firm Hot Tuna has been suffering from a financial chill. Amid boardroom upheavals and cash calls, the company lost £1.4m in its last full year and was still in the red at the interim stage of this year.

With so much gloom in the world, there could be an appetite for thecarefree, surfer-dude image that the company would like to cultivate, particularly among the 15-25 age group which Hot Tuna targets. And yesterday's trading statement was not without positives.

For a start, orders from Amazon have risen by 30 per cent. The company has also unveiled a new e-commerce website together with a public relations, social media and marketing campaign. This quotes prices in euros as well as in sterling, making it easier to sell goods across the continent. Still, big questions remain.

For example, Hot Tuna has admitted that it has achieved "minimal" sales in the US, which is a worry when you make a big deal about operating your design, manufacturing, production, marketing and distribution in California.

Given the operation's recent turbulent history there are just too many question marks to make it a viable investment proposition at the moment, even for those willing to speculate. Keep a watching brief but avoid for now.

BTG

Our view: Buy

Share price: 265p (+27p)

BTG cheered investors yesterday, with the pharma group saying its full-year performance would beat analyst hopes. The business now expects to book between £160m and £165m in annual revenues.

We last backed the shares when they were worth around 224p. Today, they are higher, and there appears to be more to come. BTG's licence and biotechnology business is showing strength, boosted in part by some regulatory approvals. Other operations have also displayed signs of progress.

Moreover, valued at five times enterprise value to sales, the stock is pricing in some unreasonably bad news. As Peel Hunt pointed out, the shares reflect "worst case scenarios" for the Zytiga drug, which is selling well, the Varisolve varicose veins treatment, which will soon complete its phase-three trial, and the CytoFab drug for severe sepsis, which is in phase two trials.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
Tangerine Dream Edgar Froese
people
News
Rob Lowe
peopleRob Lowe hits out at Obama's snub of Benjamin Netanyahu
News
Davies (let) says: 'Everybody thought we were having an affair. It was never true!'
people'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Arts and Entertainment
Over their 20 years, the band has built a community of dedicated followers the world over
music
News
Staff assemble outside the old City Road offices in London
mediaThe stories, the writers and the changes over the last quarter of a century at Britain's youngest paper
Life and Style
The Oliver twins, Philip and Andrew, at work creating the 'Dizzy' arcade-adventure games in 1988
techDocumentary looks back at origins of the computer-games industry
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
Krall says: 'My hero player-singer is Elton John I used to listen to him as a child, every single record
music
News
Friends for life … some professionals think loneliness is more worrying than obesity
scienceSocial contact is good for our sense of wellbeing - but it's a myth that loneliness kills, say researchers
Arts and Entertainment
The Wu-Tang Clan will sell only one copy of their album Once Upon A Time In Shaolin
musicWu-Tang Clan and The Sexual Objects offer fans a chance to own only copies of their latest albums
News
i100
Environment
Number so freshwater mussels in Cumbria have plummeted from up to three million in the 20th century to 500,000
environment
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project
Diana Krall: The jazz singer on being friends with Elton John, outer space and skiing in Dubai

Diana Krall interview

The jazz singer on being friends with Elton John, outer space and skiing in Dubai
Pinstriped for action: A glimpse of what the very rich man will be wearing this winter

Pinstriped for action

A glimpse of what the very rich man will be wearing this winter
Russell T Davies & Ben Cook: 'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'

Russell T Davies & Ben Cook: How we met

'Our friendship flourished online. You can share some very revelatory moments at four in the morning…'
Bill Granger recipes: Our chef serves up his favourite Japanese dishes

Bill Granger's Japanese recipes

Stock up on mirin, soy and miso and you have the makings of everyday Japanese cuisine
Michael Calvin: How we need more Eric Cantonas to knock some sense into us

Michael Calvin's Last Word

How we need more Eric Cantonas to knock some sense into us