Antofagasta PLC

Antofagasta PLC (LON: ANTO) is a FTSE 100 listed, International Copper Mining Company. It is primarily engaged in the activities related to exploration, evaluation, and mining of Copper in Chile.

On 1 October 2021, the interim dividend will be paid to shareholders on the register at the close of business on 3 September 2021.

Investment Rationale – BUY at GBX 1,389.00

• Higher realised copper prices offset the decreased sales volume in H1 FY21. Subsequently, the Company ended the H1 FY21 with net cash of US$701 million on 30 June 2021.
• The earnings per share in H1 FY21 of 67.5 US cents, was 53.8 US cents higher than the H1 FY20.
• The Company declared an interim dividend of 23.6 US cents per share, representing a pay-out ratio of 35% of net earnings.
• Antofagasta has strong profitability multiples as gross margin, operating margin and net margin were 60.5%, 50.7%, and 31.2% in H1 FY21, respectively. All three margins were better than the industry median.
• From a technical standpoint, 14-day RSI (38.22) is inching towards the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bolling Bands.

Risk Assessments

• The copper prices have dropped significantly as sluggish economic growth kept a lid on demand.
• The factory activities are also growing at lower pace due to the resurgence in Covid-19 cases globally.
• Moreover, with the economic downturn, there is a risk of changes in fair value of its financial assets and liabilities. Also, there are financial risks associated with foreign exchange rates and interest rates movements.

Recent News

Copper Mark: On 9 August 2021, Antofagasta obtained its first Copper Mark at Centinela mines, reflecting that the Company is following the international sustainable production standards. 

Financial Highlights (for the six months ending 30 June 2021, as on 19 August 2021)

 (Source: Company Website)

• Antofagasta generated a revenue of US$3.6 billion in H1 FY21, which boosted EBITDA by 133% year-on-year to a record US$2.4 billion.
• The operating discipline and cost control kept operating costs below guidance, reflecting resilience and agility of the business model.
• During the H1 FY21, ANTO incurred capital expenditure of US$782 million, representing 49% of FY21 guidance.

Share Price Chart

(Data Source: Refinitiv, Analysis by Kalkine Group)  

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

In H1 FY21, the Group revenue surged 67.9% year-on-year due to increased copper prices. However, copper prices can get hit by a drop in Chinese imports recently. Notwithstanding, the Copper industry is fundamentally strong for the long run with the advancement of green transportation and renewable energies. In FY21, Antofagasta is also targeting to achieve savings of US$100 million. In terms of guidance for FY21, production guidance has been revised to 710-740,000 tonnes, while the net cash cost guidance was maintained at US$1.25/lb (pound). The stock made a 52-week high and low of GBX 1,972.00 and GBX 978.40, respectively.

Based on the robust financial performance, strong balance sheet, reiterated cost guidance, long-term copper demand fundamentals, supported by the valuation conducted above, we have given a “BUY” recommendation on Antofagasta PLC at the current market price of GBX 1,389.00 (as on 9 September 2021 at 7:10 AM GMT), with lower double-digit upside potential based on 16.43x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Centamin PLC

Centamin PLC (LON: CEY) is an FTSE 250 listed Gold Mining Company, specialises into the exploration and development of minerals. It owns Sukari Gold Mine in Egypt with a production capacity of around 500,000 ounces per annum.

The interim dividend timetable is given in the image below:

(Source: Company Website)

Investment Rationale – SPECULATIVE BUY at GBX 93.10

• CEY has no debt or hedging on the balance sheet, and it has robust liquidity of US$312 million (as on 30 June 2021). The intention of a final dividend for around 5.0 US cents per share shows confidence in the outlook and progress delivered on the strategic plans.
• The Gold prices are hovering around the four-month high currently. It should continue to boost the free cash flow for the Company.
• From a technical standpoint, 14-day RSI (36.81) is inching towards the oversold territory, while the stock price is hovering close to the lower standard deviation of the Bolling Bands.
• CEY has solid profitability margins as EBITDA and net margin were 51.8% and 31.8%, respectively, in H1 FY21. Both margins were significantly higher than the industry median.
• On a forward 12-month basis – EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book valuation multiples are quite undervalued against the industry median of Basic Materials sector.

Risk Assessments

• The sluggishness in gold prices due to US dollar strengthening and uncertain demand outlook can impact the Company’s financial condition.
• It is exposed to financial risk with fluctuations in gold price and exchange rates.
• Furthermore, the unavailability of adequate working capital can impact regular revenue and cash flow.
• The Global Covid-19 pandemic could result in the suspension of operations and increase labour absenteeism.
  

Recent News

Dividend Declaration: On 5 August 2021, Centamin declared an interim dividend of 4.0 US cents per share, for the six months ended 30 June 2021.

Financial Highlights (for the six months ended 30 June 2021, as on 23 August 2021)

 (Source: Company Website)

• During H1 FY21, CEY sold 203,802 ounces of gold at an average realised gold price of US$1,799/oz, and thus, generated US$367.4 million in revenue.
• The all-in sustaining costs ("AISC") and cash cost of production were US$1,186/oz sold and US$807/oz produced, respectively.
• Subsequently, EBITDA margin stood at 52% with US$190.4 million in EBITDA for H1 FY21.
• The profit before tax was US$116.8 million with basic earnings per share of 5.16 US cents.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative) 

Conclusion

CEY has a sector-leading dividend returns to shareholders, which reflects the Company's confidence in the outlook. It demonstrated substantial progress in H1 FY21 with strong financial and operating performance with a continuous focus on improving operating efficiencies and productivity. The Group is also on track to meet its FY21 production and costs guidance. The Company has maintained its gold production and cost guidance for FY21 as 400,000 to 430,000 ounces (oz) at cash costs of US$800 to US$900 per oz produced. The resilient balance sheet shall help in unlocking greater value from Sukari and create diversification opportunities across the portfolio. In a nutshell, Centamin is cash generative business with active investment to drive future growth, which ensures consistent dividend returns to shareholders. The stock made a 52 week High and Low of GBX 223.10 and GBX 93.08, respectively.

Based on the promising gold price environment, sound profitability, industry leading dividend returns, supported by valuation conduced above, we have given a “SPECULATIVE BUY” recommendation on Centamin PLC at the current market price of GBX 93.10 (as on 9 September 2021 at 7:07 AM GMT) with lower double-digit upside potential based on 10.95x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

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