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The natural resources firm revealed a 5% drop in first-half profits. This was attributed to a mixture of weak commodity prices, falling production levels and higher costs. A number of negative factors all came at once for the London-listed stock, luckily some of the problems that the company faces are only temporary, which could facilitate a continuation of the share price recovery.
The major drop-off in the price of oil at the backend of last year coincided with the planned maintenance at the company’s oil and gas subsidiary, Cairn Energy. Production levels of oil and gas dipped by 8% during this time period, and now that energy prices have rebounded and production will return to normal levels, the second-half figures should provide a nice finish to the financial year.
Vedanta’s copper operation in Zambia is still encountering a number of ‘challenges’, but the company’s turnaround is underway in terms of output and profitability. Copper, like oil, has been moving higher throughout 2015, and the aggressive monetary easing from China – at the end of last year – and this will boost demand for the commodities.
When Vedanta reveals its full-year numbers, the market is expecting revenue of $13.05 billion and a net adjusted loss of $59 million. These forecasts represent a 0.85% rise in a revenue and a 163% drop in adjusted net income.
The natural resources company will also report its second-half figures on the same date, and the market is expecting revenue of $6.5 billion and a net adjusted loss of $160 million. This compares with the first-half revenue of $6.45 billion and adjusted net income of $25 million.
Equity analysts are moderately bullish on Vedanta Resources, and out of the 16 recommendations, six are buys, eights are holds, and two are sells. The average target price is £6.12, which is 7% below the current price. Investment banks also hold a moderately bullish outlook for KAZ Minerals, and out of the 25 ratings, eight are buys, 15 are holds, and two are sells. The average target price for KAZ Minerals is 248p, which is marginally below the current price.
Vedanta’s share price has been in an upward trend since the end of January, and £7 is the initial target. Beyond that £8 will be the next level to watch. The previous resistance at £6 is now acting as support, and if that level is punctured the 450p region will be the next level of support.