ASX code MRE Div yield .00% Market Cap 792,554,271 Risk high NTA $0.00 Term med/long 12-month high/low $3.65/$1.76 Closing price $1.71 Forward P/E ratio 6.10 Recommendation Hold % of holdings 3.00% Original rec 04/03/04 - Bought up to $2.95
Well, as it turns out, yesterday’s query by the ASX which led to a production update has confirmed the rumour that was floating around, that being that the company has incurred further maintenance problems that have led to further production downgrades. This is a very disappointing result – and there is little reassurance to be gained by the fact that the stock seems to be weak in advance of every bad announcement. It seems the market is very sceptical about any guidance management gives the market (and rightly so), which is why the stock continues to trade at a discount to its peers.
Realistically, the downgrade is not substantial, however it appears that analysts are factoring in further problems in their forecasts. When a company has as many problems as MRE has, assuming a problem-free year is a big ask! The fact that the downgrade came on the back of an ASX query has compounded our concerns. Not only are we questioning the plant’s reliability, but also management’s handling of the situation, which is a worry!
We have come to a difficult point with MRE. On management’s continued guidance, there is no doubt the stock is cheap. However, it seems likely that it will take a lot for the market to buy into anything MRE says. Indeed, if MRE can never produce nickel at capacity, then what good is a resources boom?! Other nickel stocks have soared with the price of nickel, but MRE continues to splutter while market conditions are good. And unfortunately, despite the company’s potential, if we can not believe in the management and plant reliability, then holding the stock seems futile. We still believe that if MRE gets it right, with nickel prices where they are, the upside potential is massive. However, at this point, it is hard to justify the view that management will get it right. There have been rumours of a possible takeover, and while we feel it makes sense, we feel the chance of this is not substantial enough to hold on that reason alone.
So, as much as it pains us to say it, we feel it is no longer worth being in the stock. However, we do not feel that MRE is a sell at any price. We feel the market has over-reacted to yesterday’s announcement, so we do feel it wise to wait for some strength in the stock before exiting. We will keep subscribers updated as to when we feel it is the right time to sell. We are very disappointed by how this investment has panned out, but it really does highlight the risks involved with these types of resource stocks, and demonstrates the importance of appropriate portfolio allocation.
MRE Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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