Investments: Lonmin clears potential roadblock with South African union pact
Nikhil Kumar is The Independent's New York correspondent. He was formerly assistant editor on the foreign desk and has also done a variety of jobs on the city desk, where he wrote about markets, commodities and other business and economics topics.
Tuesday 06 December 2011
OUR VIEW: HOLD
SHARE PRICE: 1,076P (+13P)
Investors were rightly cheered by Lonmin's announcement of a pay and benefit agreement with its staff yesterday. The London-listed, South Africa-based platinum miner said staff will receive pay rises and benefit improvements of up to 10 per cent, depending on job grades, as part of a two-year agreement with the National Union of Mineworkers in South Africa.
The news sent Lonmin's shares higher, as the agreement removed a potential roadblock to the development of the world's third-largest platinum producer. However, the FTSE 100 group's shares haven't had a great year.
Lonmin's shares have suffered, in part, because the price of platinum has slumped by about 12 per cent so far this year to hover around $1,550 an ounce. About 60 per cent of platinum sold is used in catalytic converters to reduce emissions from vehicles and its price has been falling amid lacklustre demand for cars.
At the same time, Lonmin has been hit by the broader resources boom in South Africa, which has pushed up wage inflation, the price of power and the value of the country's currency.
Throw in an illegal strike at its Karee operations – which caused Lonmin to cut its 2011 production target – rising aluminium supply and concern about the outlook for the global economy and it's not surprising that, in common with its mining rivals, the group has seen its shares tumble.
But despite a difficult few months, there is a sense that the future looks bright(ish). The consultancy GFMS has just put out research which sees the price of platinum rising as high as $1,800 an ounce next year as the global car industry shows signs of recovery.
The price is set to be given a further boost because the metal is increasingly seen as a good "safe-haven" investment, especially because the price gap between gold and platinum has shrunk of late. And although they are unlikely to blossom over the next few months, the longer-term outlook looks good and the shares are worth holding on to.
OUR VIEW: HOLD
SHARE PRICE: 221P (-0.8P)
SThree's share price has been under pressure since the summer, falling particularly hard in the weeks after its interim results in July – which appears odd. The update showed that profits were up, and also brought news of a special dividend for shareholders.
The weakness may well have been down to market jitters, as the risks to the world economy – particularly from the eurozone debt crisis – began to accelerate in August. Last week, the recruiter, which has done well to expand its reach overseas, issued an update on its full year, telling the market that its profits were expected to be in line with market hopes.
It is also expecting to declare a higher final dividend. But it did reveal that the growth in its gross profits in the fourth quarter had been slower than the rate seen in the third quarter. This, unsurprisingly, led to concerns in parts of the analyst community, as the City factored in the impact of the darkening economic outlook.
So, is the market right? One of the things that we've always liked about SThree is its international exposure, as we have been worried about the outlook for the UK for some time.
But with global economic trends also turning sour, the shares may well remain under pressure for some time yet. That said, this remains one of our preferred recruitment plays, not least because of its strong balance sheet and affordable valuation. Once the world is back on track, SThree's shares will recover. But for now, we'd stay put.
OUR VIEW: SELL
SHARE PRICE: 66P (-2.5P)
Christie, the AIM-listed business services and stock and inventory systems specialist, had a day to forget yesterday when its shares came under pressure after a profits warning, falling as low as 64.5p before recovering to 66p.
The group, which specialises in the leisure, retail and care service markets, said that its operating profit for its current financial year would not be higher than the £600,000 posted in the first half. Christie blamed the "current turmoil in the European debt markets", which has hit the financing of, and delayed, transactions run by its professional business services division.
It also said the shortfall was also due to investment in staff, technology – such as the integration between wireless devices and stock management systems for clients – and other areas, such as its commercial property business, Christie & Co, opening an office in Dubai in March. While the group said its revenues for the year to 31 December are expected to be "materially higher", Christie's house broker, Charles Stanley, cut its full-year pre-tax profit hopes by a whopping 72 per cent.
In the company's defence, its shares have been buoyant this year, but the scale of the downgrades and a tough outlook for corporate transactions make us nervous.
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