Bowen Coking Coal Limited (ASX:BCB), a AUDA$9.86M small-cap, is a metals and mining operating in an industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Basic material analysts are forecasting for the entire industry, a positive double-digit growth of 26.85% in the upcoming year , and an enormous growth of 39.25% over the next couple of years. This rate is larger than the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether BCB is a laggard or leader relative to its basic materials sector peers. See our latest analysis for BCB
What’s the catalyst for BCB’s sector growth?
Overall, the basic materials sector seems like it has reached maturity in its life cycle. Companies appear to be highly competitive and consolidation seems to be a natural trend. There are plenty of emerging trends to deal with across the board including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the past year, the industry delivered growth of 6.76%, though still underperforming the wider Australian stock market. BCB lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means BCB may be trading cheaper than its peers.
Is BCB and the sector relatively cheap?
The metals and mining sector’s PE is currently hovering around 14x, relatively similar to the rest of the Australian stock market PE of 18x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 10.72% on equities compared to the market’s 11.92%. Since BCB’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge BCB’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? BCB has been a metals and mining industry laggard in the past year. If your initial investment thesis is around the growth prospects of BCB, there are other metals and mining companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how BCB fits into your wider portfolio and the opportunity cost of holding onto the stock.