Four mining services companies where we see value
Investing in small cap mining services firms is not for the faint hearted given their exposure to the commodities cycle. But with the sector down around 40 per cent year to date (vs Small Ords down 23 per cent), and most major miners continuing to produce, we see value as attractive for the risk. There are four companies we particularly like.
We have recently taken advantage of depressed valuations and selectively added to our small cap mining services exposure. While this is a cyclical sector, the risk-reward profile appears better than prevailing share prices would otherwise suggest.
Mining has been designated an essential service in Australia (coal and iron ore royalties have perhaps never been more important for the Government’s ailing coffers) with production and development activity largely uninterrupted to date. This indicates near-term earnings for mining services companies may prove stronger than initially feared. Notwithstanding the less certain medium-term demand picture for commodities in a COVID-19 impacted world, fixed asset investment has historically played a central role in fiscal stimulus policies which potentially underpins a relatively solid mining services outlook.
Dominic Rose is the Portfolio Manager of the Montgomery Small Companies Fund. Dominic joined Montgomery in August 2019 after spending thirteen years specialising in smaller companies in portfolio management and equities research. Most recently, Dominic was a Portfolio Manager and Senior Research Analyst at MHOR Asset Management in Sydney for three years. Prior to this, he ran Deutsche Bank’s Small Caps Equity Research Team in Sydney for six years. He was also previously Head of Research at Foster Stockbroking.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Maurice Prendergast
:
Hi there Monty and team,
My question relates to small holdings that I have.All with good reasoning.
What do you think of my strategy.
My holdings are as holdings
So4————-potash
Clv—————powdered milk addictive
Clq—————cobolt and water purification
Pet—————water purification
Imu—————medical research into cancer
Wgx—————gold
Moh —————gold
Rht —————-health
Idt——————-manufacturing pills
Mgx——————medical marijuana
And Hydrogen
Thank you and all the best
Ps fortesque,
Maurice.
Roger Montgomery
:
Hi Maurice, very kind of you to share your thoughts and positions. We are unable to make direct comments on these stock in this context, lest they be perceived as advice. Keep an eye on the blog for future articles that cover some of the themes you have highlighted.
Dominic Rose
:
Thanks Michael, yes they are a quality engineering outfit – seen many cycles and have an excellent track record of delivery.
Michael
:
Lycopodium looks top notch as well. Good growth, exposure to the only positive commodity sector (gold) and strong dividend.