Petra Diamonds – A Rough diamond that should polish up well

Petra Diamonds (PDL) has certainly been in the wars of late. Issues with ‘Sales Parcels’ being held up, tough challenges from labour strikes and the strengthening Rand are the main points of concern. Oh… and that $650m debt pile of course! But even taking the above into consideration, does a near 100p knocked off the share price over the last 12 months justify the fears? PDL’s core businesses/mines are performing very well. Record volumes and lower capex are hardly good news stories to ignore. The business and sales throughput is strong. Which just leaves the other niggles to worry about. Assuming the Rand begins to work in PDL’s favour (even marginally) and the ‘Sales Parcel’ issue gets resolved amicably – the debt situation should sort itself out. The company is expected to reduced debt to a range of $560 to $600m by end of H1. Further details on 2018 capex plans and potential operational savings are expected to be revealed when the company issues interims on Feb 19th. That’s just 5 days away, so not long to wait.

For investors that like a recovery story based on strong fundamentals rather than market casino algo bots… PDL might be your answer. The business looks robust but significant near term risks remain. Resolve those issues and the recovery to 100p+ should be fast. And remember, diamonds are forever.

The ShareHub initiates coverage on PDL (part of the ShareHub ‘Heads up’ calls for 2018) with a share price target of 130p.

Based on current share price of 68.3p, that’s within a hair of multibagger potential with a serious sparkle. No guarantees of course so please read the risk section in the side panel.