Timah Resources Limited (ASX:TML), a AUDA$4.69M small-cap, operates in the utilities industry which faces recent trends of rising cybersecurity threats, increasing usage by consumers and growing number of innovative competitors. Utilities analysts are forecasting for the entire industry, a strong double-digit growth of 11.33% in the upcoming year , and a low 2.35% growth over the next couple of years. This rate is below the growth rate of the Australian stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Timah Resources is lagging or leading its competitors in the industry. View our latest analysis for Timah Resources
What’s the catalyst for Timah Resources’s sector growth?
Going forward, utility companies face the threat of new entrants and disruptive technologies, growth in renewable generation, and aging assets, just to name a few. In the previous year, the industry endured negative growth of -24.26%, underperforming the Australian market growth of 6.90%. Timah Resources 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 Timah Resources may be trading cheaper than its peers.
Is Timah Resources and the sector relatively cheap?
The utilities industry is trading at a PE ratio of 14x, in-line with the Australian stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a lower 5.82% compared to the market’s 11.87%, potentially indicative of past headwinds. Since Timah Resources’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Timah Resources’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Timah Resources recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Timah Resources as part of your portfolio. However, if you’re relatively concentrated in utilities, you may want to value Timah Resources based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Timah Resources has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the utilities industry. Before you make a decision on the stock, take a look at Timah Resources’s cash flows and assess whether the stock is trading at a fair price.