Zanaga Iron Ore Company Limited (LON:ZIOC) And The Basic Materials Industry Prospect For 2018

Zanaga Iron Ore Company Limited (AIM:ZIOC), a UK£43.62M small-cap, is a metals and mining operating in an industry which supplies materials for construction. This means it is highly sensitive to changes in the economic cycle, a key driver of building activities. Furthermore, the basic materials sector can be affected by shifts in the housing market, as many produced raw materials are components of construction projects. For example, if new housing development slows, the demand for metal products may also decrease. Basic material analysts are forecasting for the entire industry, a positive double-digit growth of 19.88% in the upcoming year , and a robust short-term growth of 27.47% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Is now the right time to pick up some shares in metals and mining companies? In this article, I’ll take you through the sector growth expectations, as well as evaluate whether Zanaga Iron Ore is lagging or leading its competitors in the industry. Check out our latest analysis for Zanaga Iron Ore

What’s the catalyst for Zanaga Iron Ore's sector growth?

Overall, the basic materials sector seems to be predominantly mature in terms of its industry life cycle. Companies appear to be highly competitive and consolidation seems to be a inevitable. However, the industry is still facing many emerging trends including the reduction of waste, raw material inflation, and innovation in global supply chain management. In the past year, the industry delivered growth in the forties, beating the UK market growth of 11.85%. Zanaga Iron Ore lags the pack with its sustained negative earnings over the past couple of years. The company's outlook seems uncertain, with a lack of analyst coverage, which doesn't boost our confidence in the stock. This lack of growth and transparency means Zanaga Iron Ore may be trading cheaper than its peers.

Is Zanaga Iron Ore and the sector relatively cheap?

The metals and mining sector's PE is currently hovering around 11.32x, lower than the rest of the UK stock market PE of 17.67x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 13.21% on equities compared to the market’s 11.98%. Since Zanaga Iron Ore’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Zanaga Iron Ore’s value is to assume the stock should be relatively in-line with its industry.

Next Steps:

Zanaga Iron Ore recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If the stock has been on your watchlist for a while, now may be the time to buy, if you like its ability to deliver growth and are not highly concentrated in the materials industry. However, before you make a decision on the stock, I suggest you look at Zanaga Iron Ore's fundamentals in order to build a holistic investment thesis.

• 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
• 2. Historical Track Record: What has ZIOC's performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
• 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Zanaga Iron Ore? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.