Should You Buy Independence Group NL at This Price?

What happened to the IGO share price?

Independence Group NL [ASX:IGO] is a miner with exposure to base metals. You may already know what’s been happening to commodities and base metals over the last five years. They’ve gone down massively due to overcapacity in China and softening demand (in China and around the world).

You may also know that base metals have rallied in the last few months. IGO has been a beneficiary of that rally; it brought in around 40% gains since the beginning of February 2016.

By 3.36pm today, IGO was trading 4.25% higher than yesterday’s close.

Why did IGO shares do this?

The company currently receives a consensus rating of ‘Hold’ to ‘Outperform’ from market analysts. The market believes the company will see growing revenues in 2016 and 2017. EPS is also expected to rise in these two years, particularly in 2017. The long term growth rate for the company is at just under 30%.

IGO has a beta of 2.27, which means it is more volatile than the market by 127%. It means that, when the market moves, IGO moves by a bigger amount (+/-127% more). The company pays a dividend, and has been paying a dividend at a growing rate over the last five years. That is a good sign of fundamental health.

However, sales are negative, and EPS is currently negative too. The company has plenty liquidity. It has a high interest coverage ratio. The debt-to-equity ratio reveals that the company is not terribly indebted, indicating to us relatively low solvency risk.

What now for IGO?

IGO’s rally is not an isolated event; it is a sector wide event. Australia is a big mining economy; miners have been having a tough time in the last few years. Periodically, there have been mini-rallies that investors could have taken advantage of, such as the one we’re seeing now. The energy price collapse was so severe that investors can be confident enough to believe there are at least some ‘cheap’ miners out there.

It comes down to your investment horizon. If you are looking at the long run, then fundamentally healthy miners such as IGO can be a good way to go. If you are looking at the short run, things are a little different. If you increased your sector-exposure to Mining & Metals in recent months, you will have benefited.

What will happen next? Will the commodity rally continue? Those questions are heavily debated and no one can give you the definitive answer. If you are agile enough, you can ride these mini-rallies for gains. If you are a long term investor, a fundamentally healthy miner can be a good way to go.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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