Saba Capital Management’s latest activist proposal at ASA Gold and Precious Metals (ASA) introduces a potential private credit subadviser for the planned restructuring into a BDC, putting governance and future portfolio direction in sharper focus for investors.

ASA Gold and Precious Metals has seen its share price rebound recently, with a 7.5% 7 day share price return and a 4.7% 30 day share price return, although the 90 day share price return is down 21%. Over a longer horizon, the 1 year total shareholder return of 57.4% and 3 year total shareholder return of about 2.7x point to strong compounding, and the latest activist proposal now appears to be reshaping expectations around future risk and return.

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After ASA Gold and Precious Metals’ sharp rebound and the activist push toward a BDC structure, the share price now sits well below intrinsic estimates. How far does that 42% discount really stretch on fair value?

Price-to-Earnings of 1.4x: Is it justified?

On simple valuation checks, ASA Gold and Precious Metals looks inexpensive, with the SWS DCF model pointing to a fair value of $93.52 against the last close of $54.63. That 41.6% discount sits alongside a P/E of 1.4x, which is far below both the US Capital Markets industry average of 39.1x and the peer average of 18.8x.

The P/E ratio compares what investors are paying for each dollar of reported earnings. For an investment company like ASA Gold and Precious Metals, that can be heavily influenced by realised and unrealised gains in the portfolio. This means reported earnings may not repeat in future periods in the same way as an operating business.

Recent results underline that point. Earnings growth over the past year was very large at 176.1%, well ahead of the Capital Markets industry at 35.1%. The company has recorded average earnings growth of 67% per year over the past 5 years. Net profit margins are higher than last year and return on equity sits at 53.7%. However, the last 12 months also include a large one off gain of about $728.0m, which inflates the earnings base and pushes the current P/E down to 1.4x.

Compared with peers, the valuation gap is clear. ASA Gold and Precious Metals trades at a P/E of 1.4x versus 18.8x for a peer average and 39.1x for the wider US Capital Markets industry. That suggests the market is assigning a steep discount to ASA’s earnings relative to similar companies, even after accounting for the one off gain that affects recent profitability.

Result: Price-to-Earnings of 1.4x (UNDERVALUED)

However, ASA Gold and Precious Metals still faces uncertainty around the proposed BDC transition and the sustainability of earnings, given the large one off gain in the last year.

Another View on ASA Gold and Precious Metals’ Value

The SWS DCF model also points to ASA Gold and Precious Metals trading at a discount, with an estimated fair value of $93.52 compared with the current share price of $54.63. Both the earnings multiple and cash flow view suggest potential mispricing. The key question for investors is how much confidence to place in these inputs.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out ASA Gold and Precious Metals for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

Given the mix of concerns and optimism around ASA Gold and Precious Metals, it helps to look through the numbers yourself and move quickly while sentiment is still shifting. To see both sides of the story in one place, review the 2 key rewards and 1 important warning sign

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.