Why is Grange Resources (GRR) cheap?
Why is the P/E ratio of GRR lower then other iron ore companies like CIA, RIO and FMG?
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Answer
Hi Giles,
Firstly lets look at the standout numbers that matter:
- GRR is a $538mn iron miner trading on a P/E of 4.9x which is estimated to yield in excess of 8.5% over the next 12-months – its down -45% year to-date.
- CIA is a $4bn iron miner trading on a P/E of 16.1x which is estimated to yield in excess of 2.8% over the next 12-months – its up +7% year to-date.
- RIO is a $172bn iron miner trading on a P/E of 4.9x which is estimated to yield around 5% over the next 12-months – its up +5.3% year to-date.
- FMG is a $71bn iron miner trading on a P/E of 9.6x which is estimated to yield around 8% over the next 12-months – its up +13.3% year to-date.
Its the been the same story across equity markets both home and abroad, i.e. the small caps remain unloved with investors opting for the saver “Big Caps” which have more established operations doing bigger volumes, which is very important in Iron Ore mining, volumes improve unit economics which improve earnings etc. GRR is a lower volume (higher quality) operation but we think bulk mining is more a scale business, and it’s simply hard to compete the big guys. As can be seen above GRR is the baby compared to the other 3 companies you mentioned.
