Central Asia Metals PLC (LON: CAML)

Central Asia Metals PLC is an FTSE AIM UK 50 Index listed United Kingdom-based copper producer. It has operations in Kounrad, Kazakhstan, and Macedonia. The Company operates across three segments i.e., Copper, Zinc and Lead.

Recent trend of dividend payments

The Company had paid an interim dividend of 8.00 pence per share attributable for H1 FY21 on 22 October 2021, while the ex-dividend date was 30 September 2021. In comparison, the Company had paid an interim dividend of 6.00 pence per share for the prior year.

(Data Source: LSE Website, Research done by Kalkine Group)

Growth Prospects

• Strong Momentum in Metal Price: CAML will benefit from the rising prices of the base metals, especially copper prices (up by almost 22%), in the last year. The demand for base metals continued to rise amid economic recovery, which will, in turn, boost the price and profitability of the company.
• Targeting Low Cost & High Margins: The Company continued to focus on increasing production volume while aiming to continue efficient operations to unlock maximum value and profitable operations.
• Prudent Capital Allocation: The Company focus on predominantly four areas which include debt repayment, dividend, and acquisition opportunities. Since the implementation of the policy, CAML has returned over USD 209.6 million in dividends.

Key Risks 

• Operational Risk: Failure to identify long term storage capacity for tailings could result in an inability to process mined ore.
• Tax Risk: Increased scrutiny of taxation measures by the governments in the countries of operation may lead to higher taxation being imposed on the Group.
• Disruption in the Supply Chain: There could be further disruptions in the supply chain due to the spread of the delta variant of Covid-19, which could disrupt the operations of the Company and increase costs.
  

Key fundamental and shareholders statistics of Central Asia Metals PLC. 

BlackRock Investment Management (UK) Ltd. is the most significant shareholder as it holds nearly 18.25 million shares as of 31 December 2021.         

Operations Update (for 12 months ended 31 December 2021, as on 11 January 2022)

 (Source: Company Filings)

• Safe Performance: There were no lost time injuries at the Kounrad mine. However, there were four LTIs at Sasa during 2021.
• Production: During FY21, the Company had shown a decent growth in copper production to 14.04 kilo tonnes. Meanwhile, it came out to be more than the guidance provided.

Financial and Operational Highlights (for the six months ended 30 June 2021 as of 15 September 2021)

(Source: Company Filings)

• Top-Line Business: Despite global volatility, the Company posted resilient results with group gross revenue of USD 106.3 million against USD 75.4 million in H1 FY20.
• Profitability: The EBITDA margin improved to 61% against 56% in H1 FY20, driven by high commodity prices and cost control measures.
• Free Cash Flow: The Group’s free cash flow improved by more than 100% to USD 48.9 million against USD 21.2 million in H1 FY20. On the other hand, the Company made a debt repayment of USD 19.9 million during the period.

Financial Ratios (H1 FY21) 

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 09 February 2022 at 11:20 AM GMT, CAML’s shares were trading at GBX 226.50, down by around 1.95% against the previous day closing price. Stock 52-week High and Low were GBX 298.00 and GBX 212.00, respectively.

On a daily chart, the MACD line is giving a bullish crossover against the signal line. Hence, there could be an uptick in the stock price in the near term.

In the last one year, CAML’s stock has delivered a return of negative 2.62%. Also, it has outperformed the FTSE All-Share Precious Metals and Mining index with a return of negative 20.50% and the FTSE AIM UK 50 index with a return of negative 15.33%.

Valuation Methodology: Price/Earnings Approach (FY21E) (Illustrative)

Business Outlook

CAML delivered a robust performance in H1 FY21, with revenue rising 41% YoY and underlying EBITDA margin improved to 61%. CAML entered FY22 in a net cash position and with robust copper, zinc, and lead commodity prices. For FY22, the Company expects zinc production ranging from 20,000 tonnes to 22,000 tonnes, and between 27,000 tonnes and 29,000 tonnes for lead. On the other hand, the Company had anticipated achieving full year FY22 copper guidance of between 12,500 tonnes and 13,500 tonnes. In a nutshell, the Company aims to generate long-term returns for the shareholders with more than 10 acquisition opportunities that could drive growth in the future.

Considering the support from metal price, its continued investments plans, improved profitability margins, liquidity and leverage position, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Central Asia Metals Plc at the current price of GBX 226.50 (as on 09 February 2022 at 11:20 AM GMT), with lower-double digit upside potential based on 7.77x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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