Why the Western Areas Ltd share price surged higher today

The Western Areas Ltd (ASX:WSA) share price was amongst the biggest movers today following the release of its full-year results. Is it a buy?

a woman

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The Western Areas Ltd (ASX: WSA) share price was one of the best performers on the market today, rising almost 4% to $2.57 following the release of its full-year results.

Here are the key takeaways from the release:

  • Sales revenue up 2.3% to $213.9 million.
  • EBITDA increased 243% to $84.9 million.
  • Net profit after tax up 165% to $19.3 million.
  • Unit cash cost of production $2.38/lb, at the lower end of FY 2017 guidance.
  • Earnings per share of 7.1 cents.
  • Final dividend of 2 cents per share fully franked.
  • Cash at bank increased to $140.3 million.

I can't say I'm surprised that the nickel producer's shares have climbed higher today. Overall I felt the result was a strong one and no doubt has caused many short sellers that are targeting the company to close their positions.

Furthermore, with nickel prices improving and averaging US$4.75/lb this month, the company has had a solid start to FY 2018.

Pleasingly, management appears confident that prices can continue to improve in the future thanks to strong demand in the high end stainless steel market in China and the global electric vehicle battery market.

Demand for nickel offtake supply has been growing exponentially as electric vehicle production ramps up. And with internal combustion engine vehicles being phased out by governments across the world, I believe electric vehicle adoption is likely to increase significantly over the next decade.

This could provide nickel prices with a sizeable boost, putting Western Areas in a strong position to deliver bumper profits due to its low-cost operations.

Should you invest?

As a pure play nickel producer, a successful investment will largely come down to where the nickel price goes next.

If you feel confident that Chinese and electric vehicle battery demand will propel prices higher then I would snap up shares immediately.

In my opinion Western Areas is up there with Santos Ltd (ASX: STO) and Galaxy Resources Limited (ASX: GXY) as one of the best options in the sector.

Motley Fool contributor James Mickleboro owns shares of Galaxy Resources. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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