Caledonia Mining Corporation Plc

Caledonia Mining Corporation Plc (LON: CMCL) is listed on the FTSE AIM All-Share index and is a gold producer. CMCL operates through the Blanket Mine in Zimbabwe.

The next dividend of USD 0.13 per share would be paid on 30-July-2021 (interim dividend).

Investment Rationale for Valuation – Speculative Buy at GBX 965.00

• CMCL achieved a record quarterly gold production from the Blanket Mine in Zimbabwe in Q2 FY2021.
• The management offered a quarterly dividend which is 8% higher than the previous quarterly dividend.
• On the profitability front, CMCL has achieved a decent performance in Q1 FY2021, with the net margin outperforming the industry median of 14.6%.
• On the liquidity front, CMCL has a higher current ratio than the industry median of 2.59x since FY2020.
• On the leverage front, the Company has a lower debt/equity ratio than the industry median of 0.22x since FY2020.
• In the last two years, the stock has outperformed the benchmark FTSE AIM All-Share index. Given the prospects of CMCL, this trend could continue in future.
• From the technical standpoint, 14-day RSI (45.55) reflecting an oversold position at current levels.

Key Risks

• The gold market is cyclical and sensitive to economic changes and other factors, which are beyond CMCL’s control.
• Extreme weather conditions could lead to operational challenges, increasing costs to the Company.
• The strengthening of the US dollar may cause a decline in the gold price, affecting the revenue of the Company.
  

Q2 FY2021 Production Update (released on 6 July 2021)

• CMCL achieved record gold production of ~16,710 ounces in Q2 FY2021, up ~23.8% YoY.
• Furthermore, the H1 FY2021 gold production reached 29,907 ounces, surging ~7.8% YoY.
• Driven by this record production, CMCL maintains its FY2021 production guidance of 61,000 to 67,000 ounces. It also expects to reach its target of 80,000 ounces in FY2022.
• It also prompted the management to increase the quarterly dividend by 8% from the previous quarterly dividend paid in April 2021.

One Year Share Price Chart

 (Source: REFINITIV, Analysis done by Kalkine Group)

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

Conclusion

Though there is macroeconomic uncertainty, CMCL has made a solid start in FY2021. The management had unchanged guidance for FY2021 as it has confidence in CMCL’s prospects. The Company remains on track to reach its production target of 80,000 ounces in FY2022. The stock made a 52-week low and high of GBX 880.00 and GBX 1,900.00, respectively. On the technical chart, the next important support level is GBX 791.30.

Based on better profitability, liquidity and leverage position of the Company than the industry, decent growth prospects as per the management guidance, and support from valuation as done using the above method, we have given a “Speculative Buy” recommendation on Caledonia Mining Corporation Plc at the closing market price of GBX 965.00 (as on 7 July 2021), with a lower double-digit upside potential based on 6.27x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Zoetic International Plc

Zoetic International Plc (LON: ZOE) is listed on the FTSE and is a UK based international cannabidiol (CBD) company that manufactures and distributes its offerings across the UK, the US and Europe.

Investment Rationale – Speculative Buy at GBX 45.98

• As per the Association for the Cannabinoid Industry, the UK has become the world’s second-largest CBD market.
• ZOE completed the acquisition of Chill.com, which would provide online sales and business development opportunities.
• The Company also launched the website thechillwayuk.com, which increases appeal to the UK’s dynamic market.
• On the liquidity front, ZOE has a higher current ratio than the industry median of 0.93x since FY2019.
• On the leverage front, ZOE has a lower debt/equity ratio than the industry median of 0.29x since FY2019.
• In terms of technical standpoint, stock price is moving towards the lower Bollinger band, while 14-day RSI (42.51) reiterates the oversold position.

Key Risks

• ZOE is still a loss-making company. Hence, there could be significant pressure on its liquidity.
• ZOE operates in a highly regulated industry, which could increase its costs.
• The lack of external funding could affect ZOE’s operations significantly, as the Company is dependent on it.
  

Business Update (released on 1 July 2021)

• The Company completed the development of the website thechillwayuk.com which is ZOE’s online sales hub for CBD smokes. It went live on 30 June 2021.
• ZOE also completed the acquisition of Chill.com domain name.
• The Company reported more sales to its US distributor. There were sales of USD 0.72 million for ZOE’s 'Chill' brand of smokes and chews.
• The management is confident of the growth of its global customer base and repeat of high-value sales in the US.

One Year Share Price Chart

 (Source: REFINITIV, Analysis done by Kalkine Group)

Conclusion

The management is optimistic about the growth prospects in both the UK and US markets. There could be further growth in the Company’s global customer base driven by a dynamic UK website and repeat sales in the US. Overall, on the back of an acquisition and new website launch, the Company expects to accelerate the growth trajectory in FY2022 and beyond. The stock made a 52-week low and high of GBX 7.95 and GBX 109.70, respectively. On the technical chart, the next important support level is GBX 38.50.

Based on the better liquidity and leverage profile of the Company than the industry, its favourable prospect, driven by increasing consumer base and high-value repeat sales, and its expanding international footprint, we have given a “Speculative Buy” recommendation on Zoetic International Plc at the closing market price of GBX 45.98 (as on 7 July 2021). 

*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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