We recently compiled a list of the 10 Best Middle East and Africa Stocks To Buy According to Analysts. In this article, we are going to take a look at where DRDGOLD (NYSE:DRD) stands against the other Middle East and Africa stocks.
MENA’s Economic Outlook for 2024 and the Rising Interest in Private Equity and Venture Capital Investments
According to the Middle East and North Africa Economic Update report published by the IMF in April 2024, the Middle East and North Africa (MENA) region will experience modest growth of 2.7% in 2024, up from 1.9% in 2023. Both oil importers and exporters in the region are expected to grow at similar rates in 2024. The forecasted growth difference between the Gulf Cooperation Council (GCC) economies and developing oil importers (excluding Egypt) is nearly 1%. GDP per capita is expected to rise by just 1.3% in 2024, driven almost entirely by the GCC economies. The impact of ongoing conflicts has ceased economic activity, particularly in Palestine. In Gaza, economic activity has nearly dropped by 86% in the fourth quarter of 2023 compared to the same quarter in 2022. The Palestinian economy’s outlook remains highly uncertain, heavily dependent on the conflict’s progression. The disruptions in maritime transportation, particularly through the Suez Canal, affected both regional and global trade.
Over the past decade, most MENA economies have seen increases in their debt-to-GDP ratios as MENA oil importers struggle to reduce their debt-to-GDP ratios due to high oil prices. Additionally, oil importers have been unable to lower their debt-to-GDP ratios through inflation, mainly due to exchange rate fluctuations and off-budget factors, known as stock-flow adjustments, highlighting the need for greater debt transparency. On the other hand, for MENA oil exporters, periods of high GDP growth are typically associated with smaller increases in nominal debt stocks, leading to a slower rise or even a decrease in the debt-to-GDP ratio.
However, interest in private equity (PE) and venture capital (VC) has been surging in the Middle East and Africa, reflecting a notable shift in investment preferences within the region. According to recent data, provided by Preqin, in collaboration with the Dubai International Financial Centre (DIFC), approximately 65% of investors in the region are either planning to maintain or increase their exposure to private equity this year. Similarly, 56% of investors are keen to do the same with their venture capital investments. This growing interest is partly due to the region’s historical under-investment combined with an optimistic outlook on the regional economic and market conditions.
Despite challenges due to geopolitical tensions, venture capital remains a critical component of the investment ecosystem. The sector is expected to recover as it adapts to the current economic conditions. In the Middle East, investor sentiment towards VC and PE is generally positive. A significant portion of regional investors have reported that their PE and VC investments have met or exceeded expectations. Sectors such as fintech, technology, healthcare, and infrastructure are particularly attractive to investors.
The Middle East and North Africa region is poised for a modest economic recovery in 2024, however, geopolitical tensions and conflicts continue to pose significant challenges. As MENA economies navigate through fluctuating global conditions and regional disruptions, the interest of private equity and venture capital investors reveals the region’s promising outlook for investors and economic stakeholders.
Our Methodology
For this article, we used Finviz and Yahoo Finance stock screeners plus online rankings to compile an initial list of the 40 largest companies in the Middle East and Africa by market cap. From that list, we narrowed our choices to the 10 stocks that analysts see the most upside to. The list is sorted in ascending order of analysts’ average upside potential, as of August 23. We also included the market cap of the companies as of August 23. The list is sorted in ascending order of their average upside potential as of August 23.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A group of miners in orange overalls standing in a gold mine in the Witwatersrand Basin.
DRDGOLD (NYSE:DRD)
Upside Potential: 82.14%
Market Cap: $731.87 Million
DRDGOLD (NYSE:DRD) is a prominent gold mining company headquartered in Johannesburg, South Africa. The company specializes in the extraction of gold from surface tailings within the Witwatersrand Basin in Gauteng, South Africa. DRDGOLD’s (NYSE:DRD) operations are divided into two main segments: the Ergo segment, which is responsible for approximately 60% of the company’s total mineral reserves and 75% of its total mineral resources, and the Far West Gold Recoveries (FWGR) segment. DRDGOLD (NYSE:DRD) holds approximately 5.8 million ounces of gold in mineral reserves and about 9.6 million ounces in mineral resources.
In the first half of 2024, DRDGOLD (NYSE:DRD) gold production declined by 6.3% year-over-year, totaling 81,888 ounces, which contributed to a 10% rise in all-in costs, reaching $1,575 per ounce, which is considered high for the sector. However, strong gold prices helped improve the company’s operating margin to 30.2%, and earnings increased by 10.1% to $30.8 million.
The lower production was mainly due to delays in commissioning two high-volume sites, which were expected to replace recently depleted ones. These delays were caused by community issues and slow regulatory approvals, but the problems were resolved in January. As a result, there is optimism that gold production in the second half of FY24 could reach around 90,000 ounces, with all-in costs likely decreasing below $1,500 per ounce due to economies of scale and reduced energy costs from the solar plant. Despite challenges, DRDGOLD (NYSE:DRD) has a good chance of meeting the lower end of its FY24 production guidance of 165,000 to 175,000 ounces.
DRDGOLD (NYSE:DRD) remains debt-free, but cash and cash equivalents decreased to $80 million by the end of December 2023. This decline was primarily due to a 177.5% increase in capital expenditures to $56.2 million and a rise in trade and other receivables by $22.9 million. Looking ahead, DRDGOLD (NYSE:DRD) is expected to continue benefiting from the favorable gold price environment, which is anticipated to remain elevated, with projections from Citi and Goldman Sachs suggesting potential peaks of $3,000/oz and $2,600/oz, respectively, in the coming months.
DRDGOLD (NYSE:DRD) is implementing strategic expansions at its Ergo and Far West Gold Recoveries (FWGR) segments. The commissioning of new feeders at the Ergo plant has already set the stage for improved production, while ongoing projects, such as the construction of a 60 MW solar project and the expansion of processing capacity at Driefontein Plant, further strengthen DRDGOLD’s (NYSE:DRD) growth prospects.
DRDGOLD’s (NYSE:DRD) commitment to reinvest in capital infrastructure with approximately $193.2 million underscores its focus on long-term sustainability and growth. DRDGOLD (NYSE:DRD) is well-positioned to navigate any operational challenges while continuing to capitalize on the robust gold market. This combination of strategic investments, operational efficiency, and favorable gold prices makes DRDGOLD (NYSE:DRD) a compelling investment opportunity for those seeking exposure to the gold sector.
DRDGOLD (NYSE:DRD) is trading 11.01 times its earnings, which is a 30% discount compared to the sector median of 15.85. In the second quarter, DRDGOLD (NYSE:DRD) stock was held by 7 hedge funds with stakes worth $10.55 million. Renaissance Technologies is the largest shareholder in the company with a stake worth $6.90 million as of June 30. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $15.50, which represents an 82.14% upside potential from its current level.
Overall DRD ranks 2nd on our list of the best Middle East and Africa stocks to buy according to analysts. While we acknowledge the potential of DRD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DRD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
