Antofagasta Plc (ANTO)

The United Kingdom-based Antofagasta Plc is a global copper mining company. Their areas of operation are divided into segments like Loss Pelambres, Centinela, Antucoya, Transport division, Zaldivar and Corporate and Other. The company operates in Europe, Latin America, North America, and the Asia Pacific. Tweedy, Browne Company LLC, RBC Global Asset Management (UK) Limited and T. Rowe Price Associates, Inc. are the top institutional investors in the company. (Source: Thomson Reuters).

Recent Updates
On April 24, 2019, the group reported a production report for the first quarter of FY2019. Copper production was up by 22.6% to 188,600 tonnes on a y-o-y basis. Gold production was up by 92.6% to 62,200 tonnes on a y-o-y basis, on account of higher grades at Centinela. Production of Molybdenum rose by 12.9% to 3,500 tonnes.
During the first quarter, cash cost before by-product reduced to $1.70/lb as compared with $2.0/lb during the corresponding period of the previous financial year, mainly on account of higher production and weaker Chilean Peso.

Financial Performance – (FY18, $ million)

Source: (Company filings, LSE)

Antofagasta’s revenue stood at $4,733.1 million in FY18, as compared with $4,749.4 million in the FY17. There was a decrease of 0.3 per cent due to a decline of 6.3 per cent in the copper price and partially offset higher copper sales volume & higher molybdenum revenue. EBITDA for FY18 stood at $2,228.3 million and declined by 13.9% against the FY17,due to grade declines and higher input costs. For FY18, Earnings per share (continued and discontinued operations) stood at 55.1 cents as compared with 76.2 cents in the previous financial year and declined by27.7 per cent, due to lower EBITDA. Net Profits for the period stood at $880.3 mn. In line with the company's policy, a final dividend of 37 cents was announced, bringing the total dividend for the year to 43.8 cents.

Stock Performance – 1 Year

Daily price chart (as on May 01, 2019), after the market closed. (Source: Thomson Reuters)

At the closing as on May 01, 2019, shares of Antofagasta Plc were quoting at GBX 888.20 and declined by 19.8 points or 2.18% against the previous day closing. During the past one-year, shares have registered a 52w high of GBX 1,171.50 and 52w low of GBX 713.20. The Outstanding market capitalisation of the company stood at £8.74 bn and at the closing price, as quoted in the price chart, the dividend yield of the company stood at 3.81%.

Valuation Methodology


Key Risks
The company pointed out to the investors, the potential risks inherent in the mining sector including, the volatile nature of commodity prices and currencies. Furthermore, the sector is exposed to political, financial and operational risks, each of which has the potential to impact company/industry performance significantly.

Conclusion
The company is well positioned for growth, generating strong cash flows and improving returns. Cost Efficiency, strong reserves & resources and business performance of Los Pelambres strengthened its operations, even as declining production is a cause for concern. However, fluctuation in commodity prices, operational risks and stiff competition could affect its operations. On the basis of above valuation, we recommend investors to keep a cautious Watch approach on the stock at the closing price of GBX 888.2 (as on May 01, 2019), while any correction with support from few catalysts needs to be evaluated at a later stage.
 

Bunzl Plc (BNZL)

Bunzl Plc is a specialist distribution company engaged in the distribution of non-food consumable products to markets such as grocery, foodservice, cleaning and hygiene, healthcare, non-food retail and safety. The company offers its products with a unique business concept to its customers. Fidelity Management & Research Company, BlackRock Institutional Trust Company, N.A. and MFS Investment Management are the top institutional investors in the company. (Source: Thomson Reuters).

Recent Updates
On April 17, 2019, the group reported its first-quarter trading statement for FY19, revenue during the first quarter of FY19, surged by 4% at actual currency rate. However, on a constant currency basis, revenue rose by 2.5% approximately.  In the trading statement, the group also announced that it had acquired a Netherland based distributor, Coolpack, which is primarily engaged in the supply of specialist packaging to supermarkets and food service and pharma sector.

Financial Performance – (FY18, £mn)

Source: Company filings, LSE

On a year-on-year basis, Bunzl's top-line grew by 6% to £9,079.4 mn on account of strong organic growth and benefited from acquisitions in North America. Adjusted operating profit stood at £614 million, up by 4% as compared to the FY17 adjusted operating profit of £589.3 million. The consistent business model and strategy of Bunzl Plc, in combination with their ability to reinvest strong cash flows, helped them to register adjusted earnings per share of 129.6 pence for the year ended 31st December 2018, up by 12% from FY17 adjusted EPS at constant currency exchange rate. During the FY18, the company reported strong cash conversion of 94%. Dividend for FY18 stood at 50.2 pence and increased by 9% on a year-on-year basis.

Stock Performance – 1 Year

Daily Price Chart (as on May 01, 2019), after the market closed. (Source: Thomson Reuters)

At the closing as on May 01, 2019, shares of Bunzl Plc were quoting at GBX 2,280.0 and declined by 29 points or 1.26% against the previous day closing price. During the past one-year, shares have registered a 52w high of GBX 2,554.60 and a 52w low of GBX 2,152.0. At the closing, the outstanding market capitalisation of the company was £7.66 bn and the dividend yield of the company stood at 2.20%.
 
Valuation Methodology


Conclusion
FY18 was another strong performing year for the company, with adjusted earnings per share surged by 12% on a constant currency basis. The group has consistently delivered a return on equity above 20% for the last five years, which is a robust fundamental indicator. With the economic downturn easing, the UK foodservice market has been improving gradually. According to an in-house research report, the profit sector foodservice market in the UK has been driven by increasing numbers of transactions, rather than simply by outlet growth and is expected to continue in the coming future. Bunzl stands to benefit from the positive outlook for the foodservice industry in the UK as it provides food packaging, disposable tableware and catering equipment, cleaning and hygiene supplies, guest amenities, personal protection equipment, packaging and healthcare. Based on the strong fundamental and valuation done using the above methodology, we have given a “BUY” recommendation at the closing price of GBX 2,280.0 (as on May 01, 2019) with single-digit upside potential, based on 15.6x NTM Industry Mean Price-to-Cash flow (approx.) on FY19E Cash Flow Per Share (approx.). 

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