Antofagasta Plc

Antofagasta PLC (LON: ANTO) is a London, United Kingdom-based copper mining company. The Company’s business is differentiated into two divisions, namely mining and transportation.

On 21 April 2021, the Company will release its Q1 FY21 production report.

Rationale for Valuation – Buy at GBX 1,724.00

• In 2020, the Company saw a strong EBITDA margin and balance sheet, with no fatal accidents.
• It expects higher copper production as ore grades increase at Centinela Concentrates.
• ANTO raised its dividend almost threefold after reporting a 12% increase in annual earnings due to a recovery in copper prices.
• The Company has decent fundamental metrics as it has maintained profitability margins above the industry median in FY20.
• For the past four years, the current ratio has remained around 2.32x, which is higher than the industry median.
• From the technical standpoint, shares were trading well above the short-term support level of 100-day (around GBX 1,236.6) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• There are certain potential risks that can impact the business, such as financial risk, sustainable risk, legal & regulatory environment, climate change, foreign exchange rate fluctuations, global political uncertainty regarding trade policy, etc.
• Moreover, ANTO’s business may get affected by volatility in the commodity prices and uncertainty in demand.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 16 March 2021)

(Source: Company Website)

• Despite the challenging year, the Company achieved the production and exceeded the cost targets, with an increase in EBITDA of 12.3% YoY.
• The revenue was 3.3% higher than in 2019, reflecting an increase in gold and copper realised prices, partially offset by the reduction in sales volumes.
• The Company witnessed a strong balance sheet, with a cash flow from operations of USD 2,431 million and a decrease in net debt of 85.4% YoY.
• Led by the increased capital expenditure on the Los Pelambres Expansion project, the capital expenditure was USD 229 million higher than in 2019.
• The Board declared a final dividend per share of 48.5 cents, bringing 2020 total dividend per share of 54.7 cents.

Six Months Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

In 2021, the Company expects production to be 9,500-11,000 tonnes of molybdenum, 240-260,000 ounces of gold and 730-760,000 tonnes of copper. It also expects capital expenditure to be USD 1.6 billion in 2021. Moreover, the cash costs in the financial year 2021 before and after by-product credits are projected to be USD 1.65 per lb and USD 1.25 per lb, respectively. Meanwhile, in 2020, the Company has shown a double-digit percentage growth in EBITDA and good growth in the final dividend, with a huge reduction in net debt. It also saw the pay-out ratio of 100%, which show that ANTO can progress the strategy even in the midst of a challenging macro environment. Furthermore, the Company stated that the mining operations on 100% renewables during 2022, Zaldívar started using 100% renewable power in July 2020 and target emission reduction of 300,000 tonnes CO2e by 2022. Overall, the longer-term prospects for gold and copper are good, supported by a strong balance sheet. The stock made a 52-week low and high of GBX 590.00 and GBX 1,909.05, 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 Antofagasta at the current market price of GBX 1,724.00 (as on 18 March 2021, before the market close at 8:00 AM GMT), with lower double-digit upside potential based on 10.20x Price/NTM Cash Flow (approx.) on FY21E cash flow per share (approx.).

John Wood Group Plc

John Wood Group Plc (LON: WG.) is an FTSE 250 listed multinational Energy Services Company. The Company operates across four broader business segments such as Asset Solutions EAAA (Europe, Africa, Asia, Australia), Assets Solutions Americas, Technical Consulting Solutions, and Investment Services.

On 13 May 2021, the Company will hold its Annual General Meeting.

Rationale for Valuation – Hold at GBX 288.70

• In FY21, the Company continued focus on EBITDA margin improvement and cashflow.
• It has given a robust response in the face of challenge, with a reduction in net debt.
• As per valuation metrics, EV/Sales and EV/EBITDA multiples of the WG are currently lower than the corresponding multiples of the Oil & Gas Related Equipment and Services industry.
• From the technical standpoint, shares were trading well above the short-term support level of 200-day (around GBX 258.22) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• The Company operates across multiple geographies, and its business performance can be adversely affected by currency fluctuations, oil price volatility, unfavourable trade policies.
• Furthermore, the Company may suffer postponement of projects and reduced activity levels due to the Covid-19 pandemic.

Recent News

On 16 March 2021, the Company announced that its subsidiary WGPSN (Holdings) had reached a settlement with Scottish authorities in relation to the Unaoil investigation.

Financial Highlights (for the year ended 31 December 2020 (FY20), as on 16 March 2021)

(Source: Company Website)

• In 2020, the Company delivered a resilient financial performance, with strong operational delivery in ASEAAA and TCS.
• The adjusted EBITDA and operating profit before exceptionals were in line with the January trading update.
• The Company saw a significant reduction in net debt of USD 410 million, supported by the improved working capital performance and steps taken to protect cashflow.
• The Board has not proposed any dividends in respect of 2020.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

At the end of December 2020, the order book stood at USD 6.5 billion, with 67% due to being delivered in 2021. Looking ahead, the Company will continue to drive strong 2021 EBITDA margin delivery, maintaining the position as sector leaders in sustainability and ESG. Meanwhile, John Wood saw growth in renewables activity, with protecting the balance sheet and generating strong cashflow. The Company has generated substantial operational efficiencies with a reduction in debt. Overall, the Company would continue to optimize its operating model and focus on digital transformation. The stock made a 52-week low and high of GBX 100.90 and GBX 367.20, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on John Wood Group at the current price of GBX 288.70 (as on 18 March 2021, before the market close at 8:09 AM GMT) and will recommend fresh buying at the right time.

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

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

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.