Centamin PLC

Jersey-headquartered, Centamin PLC (LON: CEY) is Gold Mining Company, specialises into 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 103.85

• 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 final dividend for around 5.0 US cents per share shows confidence in the outlook and progress delivered on the strategic plans.
• 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.
• From a technical standpoint, 14-day RSI (47.45) is hovering in the oversold position, which the stock price is trading close to the lower Bollinger Band.
• CEY has solid profitability margins as gross margin, operating margin, and net margin were around 38%, 32%, and 32%, respectively. All three margins were better than the industry median.

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 the 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 6 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 EPS 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

Centamin demonstrated a substantial progress in H1 FY21 with strong financial and operating performance with continuous focus on improving operating efficiencies and productivity. The Group is also on track to meet its FY21 production and costs guidance. 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. It should take advantage of returns to shareholders and generate greater returns in the future. The stock made a 52 week High and Low of GBX 233.30 and GBX 99.60, respectively.

Based on the sound profitability, industry leading dividend returns, promising gold price environment, supported by valuation conduced above, we have given a “SPECULATIVE BUY” recommendation on Centamin PLC at the current market price of GBX 103.85 (as on 6 August 2021, at 7:38 AM GMT) with lower double-digit upside potential based on 14.03x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

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 payment date for quarterly dividend was 30 July 2021, paid to the shareholders on record by the close of 16 July 2021.

Investment Rationale – SPECULATIVE BUY at GBX 903.00

• 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.
• CMCL appeared confident about sustaining a higher level of dividend with good cost control, firm gold prices, and ramped up production.
• In FY20, CMCL reported sound profitability margins as gross margin, operating margin and the net margin remained higher than the industry median of 45.3%, 12.6%, and 5.6%, respectively.
• From a technical standpoint, 14-day RSI (33.10) is hovering in the oversold position, which the stock price is trading close to the lower Bollinger Band.

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.
  

Recent News 

Listing: On 8 July 2021, CMCL announced that it is considering a listing on the Victoria Falls Stock Exchange in Zimbabwe. 

Q2 FY2021 Production Update (released on 6 July 2021)

• CMCL achieved record gold production of around 16,710 ounces in Q2 FY2021, up ~23.8% YoY.
• Furthermore, the H1 FY2021 gold production reached 29,907 ounces, surging ~7.8% YoY.
• 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 (FY21) (Illustrative)

Conclusion

Caledonia Mining announced a sixth increase in the quarterly dividend since October 2019, reflecting the management’s confidence in the outlook. Moreover, the central shaft is now operating, which shall support the production guidance. Though there is macroeconomic uncertainty, CMCL has made a solid start in FY21. The management had unchanged guidance for FY21 as it has confidence in CMCL’s prospects. The Company remains on track to reach its production target of 80,000 ounces in FY22. The stock made a 52-week low and high of GBX 880.00 and GBX 1,890.00, respectively.

Based on sound profitability, sustainable dividend trend, decent growth prospects, and support from valuation as done using the above method, we have given a “Speculative Buy” recommendation on Caledonia Mining Corporation PLC at the current market price of GBX 903.00 (as on 6 August 2021 at 7:00 AM GMT), with a lower double-digit upside potential based on 6.00x 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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