Half yearly report from D&D. Murchison Metals (ASX:MMX)
Murchison, as a company and an investment, has become too complicated. So we're making a move on it now. If you own it, we think you should sell the stock.
When we first came across it, it was a straightforward iron ore play. We couldn't anticipate Murchison's movements last year, in bidding for rival Midwest (ASX:MIS). That served to depress the share price significantly. The market is placing a big discount on bidders at the moment.
We would've been happy with retaining a buy recommendation on the stock if that had been the only factor. Sometimes when a share gets cheaper, it's illogical. Those situations are usually worth buying.
But that wasn't all. Chinese steel producer Sinosteel made a competing bid for Midwest. This was where things got complicated. Sinosteel, aided by lukewarm resistance from regulators, gradually accumulated a big enough interest in Midwest to take control. It now owns over 50% of the company.
A takeover bid pushed Murchison's share price down. It's reasonable to expect shares to bounce back once the takeover collapses in that scenario. It simply hasn't happened.
In between the first bid and now, Murchison has missed most of the gains it deserved to receive from the iron ore contract pricing between Asia, Rio Tinto and BHP. Call it interference if you like. Our aim was to gain leveraged exposure to the contract process. We lost out.
The share has upside now, for sure. And by all means, if you yourself feel like the company is worth holding, be our guest and hold it. But we wouldn't back the company now unless we thought it was about to make a substantial move.
That would require a gain of 83% from here. We don't see any compelling reason for the stock to perform that well. And we think your investment money is better spent elsewhere. The market, after all, is at its lowest point since late 2006. There are more likely candidates out there than Murchison. If you own Murchison Metals shares, we recommend you sell them at market price.
MMX Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
