Polymetal International Plc – Expects strong production in the second half of 2020

Polymetal International Plc (LON: POLY) is a FTSE 100 index listed Company, which has a portfolio of nine producing gold and silver mines. The Company has two development projects, namely Amursk Pox-2 and Nezhda.

On 22 October 2020, the Company will announce the Q3 Production results.

Rationale for Valuation – Buy at GBX 1,696.00

• The Company has decent fundamental metrics as it has maintained a Net margin above 25% for the last three years and ROE (return on equity) above 20% for the last two years.
• In the last year, the Company has delivered a sparkling return of ~49.84%, which was higher as compared to the FTSE 100 Index.
• From the technical standpoint, shares were trading well above the short-term support level of 200-day (GBX 1,537.70) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The Company operates in multiple geographies due to which the Group profits can be impacted negatively due to the foreign exchange rate fluctuations.
• POLY is cautious about the outlook for the key commodities in the short term.
• The ongoing Covid-19 mayhem may also impact the business growth trajectory in the near term.

Recent News

On 17 September 2020, the Company has reaffirmed that the Prognoz deposit in Russia is one of the best silver development projects globally.  The total project capital expenditure is expected to US$ 319 million. The Company anticipates average annual production of 13.5 Moz of payable silver at AISC in the range of US$ 8-9/oz.

Financial Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 26 August 2020)

(Source: Company Website)

• The Company reported decent financial performance in H1 FY20 with a substantial increase in the revenue led by a surge in the gold price and silver price realisation which was up by ~25% and ~10% (year-on-year), respectively.
• POLY has maintained a robust liquidity profile, with US$1.9 billion of undrawn credit facilities with a strong cash position.
• It witnessed robust growth in all profitability metrics driven by higher prices and production at lower unit costs.
• The Board has declared an interim dividend per share of US$ 0.40, an increase from the same period last year (1H 2019: US$ 0.20 per share.
• LTIFR (lost time injury frequency rate per 200,000 hours worked) improved by 70% year-on-year to 0.07, with only four minor injuries recorded for the period.

One Year Share Price Chart

 (Source: Kalkine Group, Refinitiv)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

The Company is progressing well to meet FY20 production guidance of 1.5 Moz of gold equivalent. Also, with the launch of Nezhda in H2 FY21, the Company shall be able to deliver production of 1.85 Moz by 2023. At Kyzyl, sustained and stable production with continued high grades is expected, which would ensure consistent free cash flow.

Moreover, POLY continues to invest in greenfield exploration for virgin deposits in the Former Soviet Union. The Company also look forward to disinvesting additional non-core assets in 2020. It will support the ambition of long-life and low-cost production. Overall, POLY’s investments are attractively priced with high-quality assets, which enable them to generate consistent free cash flow and deliver sustainable returns for shareholders. The stock made a 52-week low and high of GBX 990.20 and GBX 2,085.00, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” stance on Polymetal International at the closing market price of GBX 1,696.00 (as on 1 October 2020), with lower double-digit upside potential based on 10x Price/NTM Cash Flow (approx.) on FY20E cash flow per share (approx.).

John Wood Group Plc - Expects strong cashflow with a reduction in debt in H2 FY20

John Wood Group Plc (LON: WG.) is a multinational Energy Services Company based out of Aberdeen, Scotland. The Company's operations are differentiated in four operating segments: Assets Solutions Americas (AS Americas), Asset Solutions Europe, Africa, Asia, Australia (ASEAAA), Technical Consulting Solutions and Investment Services.

Rationale for Valuation – Buy at GBX 207.70

• The Company recorded a lower debt-equity ratio of 0.57x (H1 FY20) against the industry median, which reflects that WG is less leveraged as compared to the industry.
• In the last six months, the Company has delivered a positive return of ~39.82%, which is higher as compared to the FTSE 250 Index.
• From the technical standpoint, 14-day RSI stood at 38.63, which is supporting the upside movement.

Key Risks

• Global political uncertainty regarding trade policy also poses a risk for the Group, including protectionist measures and regulation or legislation in local markets.
• The Company operates in multiple geographies, and profits can be impacted negatively due to the foreign exchange rate fluctuations.
• The Company’s business operations could be impacted due to the outbreak of the Coronavirus pandemic.

Financial Highlights (for the six months ended 30 June 2020 (H1 FY20), as on 18 August 2020)

(Source: Company Website)

• The Company witnessed strong liquidity and significant financial headroom, with net debt of US$1.22 billion and undrawn facilities of US$1.63 billion.
• It has improved margins in ASEAAA and TCS as compared to H1 FY19, offset by reduced margins in ASA.
• Operating profit and Adjusted EBITDA were benefitted from good operational utilisation and reduced overheads.

One Year Share Price Chart

 (Source: Kalkine Group, Refinitiv)

Valuation Methodology: Price/Cash Flow Approach (NTM) (Illustrative)

Conclusion

John Wood expects a good cash generation and a further reduction in net debt in H2 FY20. In FY20, the objectives are to maintain margins in line with 2019 and deliver strong cash flow. The Company has delivered a trading performance at the upper end of guidance. Moreover, the Company has a proven track record of leveraging the flexible and asset-light model at a decent pace to protect the margins. Also, it has many value-accretive projects in the pipeline with low risk and higher production capabilities.

The Group seems to be well-positioned to take benefits from growth trends across the energy and industrial markets and to deliver a strong performance in the long run. The stock made a 52-week low and high of GBX 100.90 and GBX 426.40, respectively.

Based on the decent growth prospects, and support from the valuation as done using the above method, we have given a “Buy” stance on John Wood Group at the closing market price of GBX 207.70 (as on 1 October 2020), with lower double-digit upside potential based on 10.53x Price/NTM Cash Flow (approx.) on FY20E cash flow per share (approx.).

*The “Buy” recommendation is valid for the current price as covered in the report as on 2 October 2020.

*All forecasted figures and Peer/Industry information have been taken from Refinitiv, Thomson Reuters.

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

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