Jersey-based Petra Diamonds, (PDL.L) is a diamond mining company and a supplier of rough diamonds. Its Mining segment is engaged in the extraction and sale of rough diamonds from mining operations in South Africa and Tanzania. Its Exploration segment is engaged in exploration activities in Botswana. It has interests in five producing mines: Finsch, Cullinan, Koffiefontein and Kimberley Underground, all of which are located in South Africa, and Williamson, which is located in Tanzania.
On October 24th, PDL provided a Q1 trading update for the period 1 July 2016 to 21 October 2016. This period saw a series of tragedies, where three unrelated incidents lead to four Petra employees being fatally injured. Hitherto, the safety record for PDL employees had been excellent. Q1 production rose 30% to 1,097,523 carats, while period revenues were $94.7m from 745,447 carats sold. With net debt at Period end of $463.9m, Petra remains on track to become free cash flow positive from H2 FY 2017 onwards. CEO Johan Dippenaar said: “Operationally, the Group has made a strong start to FY 2017 delivering close to 1.1 Mcts for Q1 and we continue to expect full year production of 4.4 to 4.6 Mcts, in line with earlier guidance.”
The growth potential at PDL had been picked up nearly a year ago, when the stock appeared on the VectorVest VST-Vector metric table, a measure computed from the square root of a weighted sum of the squares of Relative Value (RV), Relative Safety (RS) and Relative Timing (RT). Since flagging the stock at just under 60p, the stock has progressed steadily through the year to the present 152p level. Even today PDL ranks as fair value on the RV and RS metrics, and is still excellent value on the RT metric.
The chart of PDL.L is shown above with earnings per Share (EPS) in the window below the price. Over the last year EPS has more than doubled and this is the engine that’s driven the share price higher. From May 2016 to September 2016 the share price consolidated within a triangular chart pattern. While coiling within this formation the EPS continued to rise. This adds enormously to the probability of the breakout following thought into a very tradeable move as happened in PDL.
Technicians use the extent of the previous upmove (known as the flagpole) to calculate the target from the breakout of the triangle. Using this technique the target from the breakout of the triangle is approximately 200.
VectorVest values the stock at 184.46p, meaning we see further upside on offer from current levels. Buy
November 3rd 2016
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