It was difficult to own these two stocks. That’s why we stay with them


When we tipped Tirupati in June last year, we said it had two mainstays: a conventional graphite mining business in Madagascar and a much more speculative company working on the development of a new lightweight graphene-aluminum material with potentially limitless applications in aircraft wiring involved , cars and elsewhere.

We said that the latter deal was “inevitably a speculative bet,” but that “the rewards could be huge” and the shares were consequently “worth a punt,” especially since Williams felt the stock’s valuation at the time was well supported by the mining business alone .

Unfortunately, it hasn’t been easy for either side of the investment case we laid out last year.

“Tirupati continues to expand its graphite volumes, although poor weather has delayed progress by approximately three months,” says Williams. “Hopefully, as graphite volumes grow, the Company will be able to generate excess cash.”

Speaking of the more speculative company in lightweight graphene-aluminum wire, he says: “While we understand this is moving forward, it was through a business in India that was to be acquired once Tirupati received Indian government approval.

“But New Delhi recently pushed back, saying it was not certain it wanted ownership of this technology to pass to a UK-registered company. The company is considering alternative solutions, but this negates the potential benefit we originally anticipated.”

But he adds: “Nonetheless, the immediate cash flow surpluses from the new graphite mines appear to be yet to come, so we remain committed to our investment, especially as the share price has fallen to such low levels with the markets. One of the problems is that there are no broker forecasts of the potential excess cash flow, hence the very low share price.”

Many professional investors would like to have such forecasts to support their investment case, especially since these forecasts allow valuation metrics such as price-to-earnings ratios to be calculated, making it easier to compare the stock in question to others.

Williams concludes, “The whole point of these types of stocks is that if they get it right, their stock price can react dramatically. They can go up to multiples of their current price.”

As such, we continue to urge readers to be patient and maintain our Hold rating on both stocks.

Questor says: Stop

Tickers: KMK, TGR

Stock prices to close: 9.98p, 37.25p

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