UK Edition
Russia’s invasion of Ukraine has directly affected several of the stocks tipped by this column. Notably, shares in precious metals miner Polymetal have fallen by 92pc since we rated them a risky buy in March 2020 because the firm derives around two thirds of its revenue from mines located in Russia. The FTSE 100 has risen by 35pc over the same period.
Sanctions imposed on Russia are likely to have a hugely negative impact on the company’s future financial performance. Even if the firm itself is not subject to sanctions, it will nevertheless be operating in an economy that faces an extremely challenging future. Thanks to the severity of the situation in Ukraine, it would be unsurprising if investors in Polymetal lost their entire investment.
That said, the company recently proposed a full-year dividend of roughly 40p per share. This equates to around 43pc of its current share price. Furthermore, any improvement in the geopolitical situation in Russia or Ukraine could spark a dramatic share price recovery. After all, it has an attractive portfolio of assets located across Russia and Kazakhstan – assets that were expected to yield high long-term returns.
In the meantime, further share price volatility is extremely likely while events in Ukraine remain highly fluid. In Questor’s view, Polymetal’s share price has fallen to such an extent since our original recommendation that investors should hold and await further developments (of course, this does not factor in an ethical standpoint that, for some investors, will understandably override any thoughts of owning a firm that operates mostly in Russia). Hold.
Questor says: hold
Ticker: POLY
Share price at close: 92.02p
Update: Glencore
While the war in Ukraine has prompted highly disappointing returns from some shares, sentiment towards other stocks has improved. For example, shares in the diversified commodities firm Glencore have gained 21pc since our buy tip in January; this is 28 percentage points greater than the FTSE 100’s return. Its performance has been aided by buoyant commodity prices.
Although Glencore does not have any operations in Russia, it owns equity stakes in Russian companies Rosneft and En+. It is currently deciding what to do with them and is likely to make a further announcement soon.
This column’s long-term view of the firm has not changed since our review in January. Its plan to move towards metals likely to be in high demand as the world shifts to a low-carbon economy, such as nickel and copper, should put it in a strong position to improve profits. Moreover, supply issues could cause commodity prices to remain high over the coming years.
Glencore’s forecast price-to-earnings ratio of 7 suggests it still offers a margin of safety despite its recent share price rise. Holding it as part of a diversified portfolio continues to be a sound plan. Hold.
Questor says: hold
Ticker: GLEN
Share price at close: 476.2p
Update: BP
The oil major announced on Feb 28 that it would dispose of its stake of nearly 20pc in Rosneft. The holding accounted for around 17pc of the firm’s pre-tax profits in the 2021 financial year. As a result, the disposal is likely to have a significant impact on BP’s financial future – especially since it is not yet clear how much it will receive for the stake and from whom.
The recent oil price rise has boosted the firm’s financial prospects. Indeed, factors such as high inflation and the prospect of more limited oil supply thanks to geopolitical challenges have created buoyant operating conditions for the wider oil and gas sector.
A boost in profitability is likely to improve BP’s capacity to transition towards low-carbon assets in the coming years. According to its latest update, it is making encouraging progress in this area and expects 40pc of capital expenditure to be focused on its transition growth businesses, such as renewables, by 2025.
Since our buy tip in August 2021, the company’s share price has gained 28pc versus a 3pc decline for the FTSE 100. Although share price volatility is likely to remain elevated, its long-term investment prospects continue to be favourable when the stock is held as part of a diversified portfolio. Hold.
Questor says: hold
Ticker: BP
Share price at close: 380p
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