Stay on top of events for companies that are both thriving and diving
Thursday 21 Feb 2019 Author: Daniel Coatsworth

We regularly talk about the importance of having an open mind when it comes to investing. On a related note it is worth thinking about maintaining focus on news flow, particularly for companies having a run of bad luck. You run the risk of missing important information if you take your eye off the ball.

Investing is about amassing information and trying to process which bits can make a difference to a company’s investment case.

Many investors form a negative view about a company and then start treating subsequent pieces of news flow with increasing disinterest. That provides an opportunity for savvy investors to quietly pick up stock should a bit of good news slip out unnoticed by the wider market.

DID YOU SPOT THE GOLDEN NEWS?

Centamin (CEY) is a perfect example of being under the market’s radar. Last week it announced some very exciting exploration numbers on its Doropo project in Cote d’Ivoire where it is increasingly confident of being able to extract more than 2m ounces of gold. The miner hinted this could become its next organic development project.

Centamin has experienced numerous operational problems at its flagship Sukari project in Egypt which has put a dent in its share price and made investors less interested in the stock. There was only a modest market reaction to the Doropo update – but strategically this asset could be very important to the company.

Starting a second producing mine would diversify its revenue stream and geographical position, which is very important in an industry where governments have a habit of meddling with mine ownership status and imposing new taxes at the click of a finger.

Centamin is some way off from making a decision whether to develop Doropo but the latest update adds confidence, so do exploration results from another project in the country called ABC.

News flow is telling us to stay interested in Centamin despite operational challenges. And the cherry on top is takeover potential.

Sukari is a world-class project which is simply going through a bad patch. A suitor would take a long-term view and Centamin having a pipeline of interesting prospects in Cote d’Ivoire only increases its attraction to others.

Although its Cote d’Ivoire assets are still early stage, the latest results do show progress on Centamin’s behalf which is something that won’t go unnoticed in the industry.

Numis analyst Jonathan Guy says: ‘With no blocking major shareholders and the gold sector undergoing a phase of consolidation, we see Centamin as one of the more likely targets for one of the major mining groups.’

DON’T BE BLIND TO THE RISKS

If we look at this topic from a different angle, investors often get carried away with a stock that is constantly delivering good news and they fail to recognise significant risks to the investment case.

Contracts for difference (CFD) provider Plus500 (PLUS) is a perfect example where its peers issued regulation-related profit warnings yet this company kept saying everything was better than fine. Reality caught up, profit forecasts have been slashed and its shares have sunk in recent weeks.

Anyone who paid closely attention to the CFD industry would have known for some time that the risks were there – because they didn’t take their eye off the ball.

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