SO its a snapshot of a companies valuation ratio AT THAT MOMENT IN TIME.
As a result these ratios tend to go up and down with the companies earnings.So when you have the likes of BHP that has a very diversified commodities production portfolio it tend to be related to the OVERALL commodities indexes.When this goes up,BHP's P/E goes up.
With companies that are commodity specific,that is say specialising in coal,PGM's,gold etc,you will find their P/E's will go up when that commodity goes up as LONG AS THEY ARE LEVERGAED to that commodity.In other words companies that have heavy hedging or fixed contracts will tend not to go up.
A companies P/E will only be related to that companies projects long term valuation IF the indicated margins will be very strong or weak.Taking the coal industryas an example,you will find that companies that have a strong coking coal producing portfolio will have much better P/E's that thermal companies as the margins tend to be much better in relation to the costs of extraction/production.It all depends what you are leveraged to.
CCC's P/E will be VERY much related to the export thermal coal price as this is where they are most strongly leveraged.If they were predominantly Sth African domestic their P/E would probably be quite conservative as the margins are much lower than for their export component.
I will leave the general P/E debate to you guys,suffice to say that when such commodities as export thermal is strong the potential P/E will be high.
If we still have strong export thermal prices coming into DeWitt production I think the recent scrap paper valuations are quite attainable.But herein lies one of the biggest risks with CCC.
d.
CCC Price at posting:
80.0¢ Sentiment: Buy Disclosure: Held
