If you're wanting to gain exposure to the mining sector, then Nickel Industries Ltd (ASX: NIC) shares could be the way to do it.
That's the view of analysts at Bell Potter, which believe the nickel miner's shares have the potential to generate massive returns for investors.
Image source: Getty Images
Why is this an ASX 200 mining share to buy?
According to the note, the broker believes that the market is seriously undervaluing this ASX 200 mining share and sees scope for a 100%+ return for investors.
This morning, its analysts have reiterated their buy rating with a $1.73 price target.
Based on the current Nickel Industries share price of 84.5 cents, this implies potential upside of approximately 105% for investors over the next 12 months.
In addition, the broker is forecasting a 7.1% dividend yield, sweetening the deal even further.
What is the broker saying about Nickel Industries?
Bell Potter acknowledges that it has been difficult to value this ASX 200 mining share. It explains:
NIC remains unique among the remaining ASX-listed nickel producers in that its business model is dominated by the value of its downstream processing facilities, multiple nickel product exposure, strong growth outlook and its operational scale. As a result, it has been difficult to draw valid comparable valuations.
However, recent listings of comparable companies, Merdeka Battery Materials (MBM) and Trimegah Bangun Persada (TBP) has changed this and make Nickel Industries look dirt cheap. It adds:
The IPO valuations were both more than double NIC's market capitalisation and current Enterprise Values (EV's) are maintaining a material valuation gap. Trailing EV/EBITDA valuation multiples for CY22 for MBM and TBP of 130x and 13.7x respectively, dwarf NIC's 6.4x. While all three companies have aggressive growth profiles they don't, in our view, explain the disparity in valuation multiples. While Bloomberg consensus for CY23 is only available for MBM and NIC, it still shows a significantly higher multiple than NIC – yet MBM has the smallest and least diversified production base of the group.
The broker concludes:
NIC continues to offer exposure to low cost nickel mining and production in Indonesia where it is expanding and diversifying across a range of nickel products and markets. Its aggressive growth outlook and undemanding valuation metrics make it one of our top picks. Retain Buy.
