Southern Copper Is Steadily RecoveringSCCO) is down 7% this year. A look at the company’s financial results clearly indicates that weak copper prices have taken a toll on its performance. For instance, in the second quarter, its revenue was $1.4 billion, down 7% from the year-ago period.
The company posted a year-over-year decline in both its top and bottom lines due to the weakness in the global commodity pricing environment. However, a healthy sequential increase in both its top and bottom lines indicates the slow and steady improvement in global economic conditions.
In fact, according to data provided by Zacks Investment Research, Southern Copper is well-positioned for delivering excellent growth at controlled costs with year-over-year reduction in the P/E ratio to 17.61 in 2016 from 19.46 during 2015.
Zacks Investment Research forecasts Southern Copper to grow its bottom line at an average yearly rate of 12.14% over the next five years.
The long-term growth prospects of Southern Copper will primarily be driven by the steadily improving global commodity demand and pricing environment, including sentiment about copper and given a cyclical pattern of ups and downs in the pricing and demand of key commodities.
A look at expected improvements
During the first half of 2015, Southern Copper was hugely positive about the long-term growth fundamentals of the global copper market and estimates international copper demand growth of approximately 3% for this year with fresh demand for refined copper of nearly 700,000 tons. The key drivers to this continued increase in demand are the GDP growth of America pulling up the copper demand, ongoing demand expansion from export linked European industries and a 4% demand expansion in China.
However, the key commodities demand in the second and third quarters of 2015 have been negatively impacted by certain unfavorable macroeconomic conditions including, the dollar appreciation which has developed a bearish view towards the provisional category of demand for fundamental metals and the impactful Greek crisis.
The healthy demand prospects for basic metals driven by the steadily improving economies of the US, China and Europe were partially offset by negative investor sentiments regarding the major Greek crisis and the continuously appreciating dollar.
A majority of analysts are extremely positive about the growth prospects of Southern Copper, given the gradually improving global commodity pricing and demand environment and encouraged by the company’s dividend payment capabilities, highlighting the strength underlying its balance sheet.
Thus, from the points presented above, it is clear that Southern Copper enjoys a number of positives that could lead to an improvement in its financial performance going forward. Driven by an improvement in the global economic scenario and better copper demand, Southern Copper will be able to make a comeback in the long run. Also, as discussed above, the company’s performance is improving on a sequential basis, and the trend can be expected to continue in the future.
Published on Oct 3, 2015By Harsh Singh Chauhan