Antofagasta PLC

Antofagasta Plc (ANTO) is primarily engaged in activities related to exploration, evaluation and mining of copper in Chile. The company’s business is divided into two divisions being mining and transportation. The mining segment is further divided into different segments based on the exploration activities and mines of the company.

Financial Highlights (FY 2018, $ million)

(Source: Annual Report, Company Website)

Antofagasta’s revenue stood at $4,733.1 million in the financial year 2018as compared with $4,749.4 million in the financial year 2017. There was a decrease of 0.3 per cent due to a decline of 6.3 per cent in the copper price, and higher copper sales volume & molybdenum revenue. EBITDA for FY2018 was $2,228.3 million which was 13.9 per cent lower than the previous year due to grade declines and higher input costs. The total earnings per share stood at 55.1 cents in FY2018 as compared with 76.2 cents in FY2017, down of 27.7 per cent, due to lower EBITDA. Total Net Profits in FY2018 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.

Share Price Performance

Daily Chart as at April-16-19, before the market closed (Source: Thomson Reuters) 

On 16th April 2019, at the time of writing (before the market close, GMT 8:20 AM), ANTO shares were trading at GBX 1,012, up by 0.95 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 1,171.50/GBX 713.20. The company’s stock beta was 1.15, reflecting higher volatility as compared to the benchmark index.

Guidance for FY2019
In Los Pelambres, ANTO maintained the mine’s FY19 copper production guidance at 360-370kt/a (slightly higher than in FY 2018); gold production at 50-60koz with moly production at 9.5-10.5kt. Both gross and net unit cash costs guidance unchanged at USD1.50/lb and USD1.05/lb respectively. In Centinela, production guidance maintained: Copper at 260-280kt/a; Gold and moly production at 190-200koz. Both gross and net cash costs guidance remained unchanged at USD1.85/lb and USD1.35/lb respectively. In Antucoya, copper production guidance unchanged at 75-80kt/a and unit cash costs at USD2/lb. In Zaldivar, copper production guidance slightly changed at 55-60kt/a, and unit cash costs at USD1.75/lb.

Key Risks
The company pointed out to 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 significantly impact company/industry performance.

Valuation Methodology

(Note: Currency exchange rate taken for 1 USD = 0.76 GBP)

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. Demand for copper and new capital investment plans may provide new growth opportunities to the company. However, fluctuation in commodity prices, operational risks and stiff competition could affect its operations. Based on decent fundamental performance and the valuation done using the above method, we have given a “HOLD” recommendation at the closing price of GBX 1,002.5 (as on 15th April 2019).
 

Forterra PLC

Forterra PLC (FORT) is a British producer of manufactured masonry products, headquartered in Northampton, United Kingdom. The group is a UK leader in manufactured masonry products and owns a well-rounded portfolio of construction products, many of which are customized. The company are divided into two operating segments: Bricks & Blocks and Bespoke Products. The Bricks & Blocks engages in manufacturing and sale of bricks concrete blocks to the construction sector.

Financial Highlights (FY 2018, £million)

(Source: Annual Report, Company Website)

The company's revenue increased by 11% in 2018 to £367.5 million against £331 million in FY 2017.The company reported good underlying growth in revenue due to a modest increase in the volumes which reflected the sustained strength of the new build residential market. Prices also increased across all the product ranges to cover the rise in operating cost base. EBITDA for the year surged by £3.4 million to £78.8 million. Though the price and volumes increased, it was offset by higher operating costs. Energy, fuel, carbon credits, repair and maintenance costs surged in the current financial year. Net profit (attributable to equity shareholder) rose by 11.16% to £52.8 million in 2018, from £47.5 million reported in 2017. The increase was driven by lower finance cost due to reduced net debt and strong operating result. Basic Earnings per share (EPS) stood at 26.5 pence, a surge of 11.34 per cent as compared to 23.8 pence for FY 2017. The management proposed a final dividend per share of 7.2 pence and the total dividend per share stood at 10.5 pence, a surge of 10.5 per cent over FY 2017. The company's EBITDA margin was reported at 21.4% against 22.8% reported in 2017. The decline in margin was due to the diluting effect of Bespoke Products and poor performance by Bison Precast.

Share Price Performance

Daily Chart as at April-16-19, before the market closed (Source: Thomson Reuters) 

On 16th April 2019, at the time of writing (before the market close, GMT 8:22 AM), FORT shares were trading at GBX 303.65, down by 0.28 per cent against its previous day closing price. Stock's 52 weeks High and Low is GBX 339.50/GBX 205.53. The company’s stock beta was 0.69, reflecting lower volatility as compared to the benchmark index.

Key Risks
"Hard" Brexit or no-deal Brexit; Deteriorating UK economy; Removal or paring back of government support for housebuilding (e.g. Help to Buy); Unexpected decrease in mortgage supply; More bricks from Europe being imported into the UK; Higher energy costs; Lack of future M&A; Capacity constraints which prevents the ability to meet demand.

Valuation Methodology


Conclusion
Forterra's management has built a reputation for setting credible expectations and running the business conservatively. The outlook looks favourable as the UK bricks sector has stable demand and consolidated supply. The company’s focus on quality, brand portfolio, business performance - bricks and blocks segment and strong manufacturing capabilities are its major strengths, even as poor liquidity position and business performance of Bespoke Products segment needs further improvement. A positive outlook of the construction industry in the UK, an increase in the UK’s population and strategic acquisitions could present new growth opportunities to the company. However, stringent regulations, increase in manpower cost in the UK and stiff competition could affect the company’s performance. Based on the strong growth prospects of the company and the valuation done using the above method, we have given the “SPECULATIVE BUY” recommendation at the closing price of GBX 304.5 (as on 15th April 2019) with single-digit upside potential based on 8.80x NTM Enterprise value to EBITDA (approx.) on FY19E EBITDA (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The buy recommendation is also valid for the current price as covered in the report (as on April-16-19).

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