African Rainbow Minerals (JSE: ARI) has enjoyed a recent upswing, with its share price appreciating over 13.2% year-to-date. This positive momentum comes despite a challenging backdrop, with earnings falling 62% in the last year. However, analysts are forecasting a turnaround, with EPS expected to climb by 14% per year for the next three years, exceeding the market average.
The company boasts a healthy balance sheet with a net cash position of R8.50 billion. Additionally, ARI has impressive free cash flow generation, converting 119% of its EBIT into free cash flow over the past three years. This financial strength allows ARI to comfortably manage its debt and pursue future growth opportunities.
ARI’s return on capital employed (ROCE) currently sits at 15%, which is slightly below the Metals and Mining industry average of 25%. However, the trend is positive, with ROCE increasing substantially over the last five years. Additionally, ARI is employing 96% more capital now, indicating reinvestment in profitable ventures.
Technical Analysis
The 1-day chart shows that African Rainbow Minerals’ share price is currently trading at 22,997 cents, attempting to breach the 50.00% Fibonacci retracement level. This level represents a significant resistance point. A sustained push above this level could open the door for a test of the 61.80% Fibonacci retracement level (25,315 cents). A sustained push above the golden ratio could confirm the bullish momentum and would leave the 78.60% Fibonacci retracement level (28,211) and the major resistance at 31,900 cents resistance levels firmly within the bulls’ reach in the coming sessions.
The moving averages are also bullish, with the share price firmly above the 50-SMA (blue line), 100-SMA (orange line), and 200-SMA (red line). Additionally, the 50-SMA and 100-SMA are positioned above the 200-SMA, confirming the uptrend.
However, with the RSI (73.70) trading at overbought levels, failure to sustain a push above the 50.00% Fibonacci retracement level might trigger a retracement to lower levels, likely finding significant support at the 38.20% Fibonacci retracement level (21,247 cents). A breakdown below this level, with significant volume, could bring the 23.60% Fibonacci retracement level (18,730 cents) and the major support level at 14,662 cents into play.
Summary
African Rainbow Minerals has shown robust year-to-date performance, supported by a solid balance sheet and efficient debt management. The stock is poised for potential upward moves, with key resistance levels at 25,315 cents and 31,900 cents if the bullish momentum continues. However, caution is advised due to overbought RSI levels, with significant support at 21,247 cents and 18,730 cents, should a short-term pullback occur.
Sources: TradingView, Trading Economics, Sharedata, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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