EVRAZ Plc

EVRAZ Plc (LON: EVR) is an Industrial Metal company, having operations in the Czech Republic, Canada, Russian Federation, Italy, Kazakhstan and the USA. The company operates mining activities and is also amongst the top infrastructure steel producer worldwide.

Trading Update - Q3 Financial Year 2019
In Q3 of the financial year 2019, the company’s combined crude steel output declined by 3.4 per cent versus Q2 FY2019. Output was impacted due to capital repairs and lower volumes at EVRAZ ZSMK. The sales of total steel products remained flat for the period. The company saw a rise in semi-finished products sales by 5.6 per cent in Q3 FY2019 as against Q2 FY2019. The coking coal products external sales remained flat QoQ. The vanadium products sales surged by 9.8 per cent in Q3 FY19 versus Q2 FY2019, due to an increased demand in China.

Financial Highlights – H1 Financial Year 2019 (30th June 2019, $, million)
 
In the first half of the financial year 2019, due to reduced prices and volumes for vanadium products and lower sales prices for semi-finished, construction and coal products, total revenues declined by 3.2 per cent to $6,140 million as against with $6,343 million in H1 2018. Lower product prices of vanadium, coal and steel led to a fall of 22.2 per cent in total EBITDA to $1,482 million in H1 FY2019 from $1,906 million in H1 2018. Net profit declined by 70 per cent to $344 million in H1 FY2019 versus $1,145 million in H1 2018. The basic earnings per share of $0.22, which reflected a decline of 71.4 per cent.

Share Price Performance

Daily Chart as at 29th November 2019, before the market closed (Source: Thomson Reuters)

On November 29, 2019, EVRAZ Plc shares were trading at GBX 370.3 at the time of writing before the market close (at 9:28 AM GMT), up by 0.30 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 710.20/GBX 340.40.

Valuation Methodology

Conclusion

The strength of the Russian steel market and the high level of vertical integration will continue to support the performance of the group. In the North American markets, the company was positively impacted by the removal of US Section 232 tariffs on aluminium and steel and retaliatory steel tariffs in Canada. However, the company remains focused on executing planned investment projects and implementing efficiency improvement initiatives to drive future growth.

Over the course of 3 years (FY15 - FY18), the company’s revenue surged from $8,767 million in FY15 to $12,836 million in FY18. Compounded annual growth rate (CAGR) stood at 13.55 per cent.

Based on the above rationale and supported by valuation done using the above method, we have given a "BUY" recommendation at the current price of GBX 366.40 (as on 29th November 2019, before the market close at 8:20 AM GMT), with single-digit upside potential, based on 6x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).

Fresnillo Plc

Fresnillo Plc (LON: FRES) is a Mexico-based precious metal group, which provides mining and exploration services.  The group has seven operating mines - all of them in Mexico - along with other development and exploration projects. The company primarily serves customers in the United Kingdom and Mexico.

Production Update Q3 FY2019
On 23rd October 2019, Fresnillo announced its production update for the third quarter ending 30th September 2019. The company’s silver production stood at 13.3 moz for the period and was down by 7.9 per cent versus 2Q19 and was down by 14.5 per cent versus 3Q18. The company’s gold production was at 209.8 koz for the period and was down by 5.2 per cent versus 2Q19 and was down by 6.9 per cent versus 3Q18. The company’s by-product lead production was up by 19 per cent versus 3Q18 and was up by 19.3 per cent versus 2Q19. The company’s by-product zinc production was up by 10.5 per cent versus 3Q18 and was up by 22.7 per cent versus 2Q19. The company appointed a new contractor to accelerate development rates at Juanicipio project. The Pyrites plant remained on track and commissioning is expected in 2H20. Fresnillo flotation plant optimisation is moving ahead as planned and will be concluded by 2H20.

Financial Highlights – H1 Financial Year 2019 (30th June 2019, $, million) 
In the first half of the financial year 2019, due to lower ore grades at the Fresnillo and Saucito mines and lower volumes of ore processed, silver production in the first half decreased by 10.4 per cent to 27.6 moz from 30.8 moz in H1 FY2018. Reflecting lower metal prices, excluding gold, and lower volumes of gold and silver sold, adjusted revenues decreased by 10.2 per cent to $1,069 million in H1 FY2019 from $1,189.9 million in H1 FY2018. EBITDA declined by 45.7 per cent to $307.9 million, reflecting higher exploration expenses and a decrease in gross profit.  Adjusted earnings per share of $8.4 cents per share were down by 74.8 per cent.

Share Price Performance

Daily Chart as at 29th November 2019, before the market closed (Source: Thomson Reuters)

On November 29, 2019, Fresnillo Plc shares were trading at GBX 571.00 at the time of writing before the market close (at 9:39 AM GMT) and remained same against the last day closing price. Stock's 52 weeks High and Low are GBX 1,028.00/GBX 536.80.

Valuation Methodology

*Peers: Kaz Minerals Plc, Rio Tinto Plc, BHP Group Plc and Centamin Plc.

Conclusion
The company reported that its exploration programme continued to produce good results and has the potential to contribute to the future value of the group significantly. Company's investments will gradually lead to better efficiency and higher production levels. 

In Q4 FY2019, the company expects its production to increase by undertaking operational measures to control costs. The group is committed to maintaining a strong exploration pipeline, which augurs well for future growth and is backed by a strong balance sheet and committed leadership.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from $1,413.7 million in FY14 to $2,103.8 million in FY18. Compounded annual growth rate (CAGR) stood at 10.45 per cent.

Based on the decent growth prospects and the valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 569.60 (as on 29^th November 2019, before the market close) with single digit upside potential based on 9.25x NTM Price/Cash flow (approx.) on FY19E cash flow per share (approx.).

Burford Capital Ltd

Burford Capital Ltd (LON: BUR) is the provider of funds and investment management services to the legal market. Total headcount is of around 80 people working in the US, Europe and Asia-Pacific, who works with clients globally.

Financial Highlights – H1 Financial Year 2019 (30 June 2019, US$’000)
In the first half of the financial year 2019, the company’s reported litigation investment income increased by 36 per cent to $264,992 thousand from $195,197 thousand in H1 FY2018. The company’s total income surged by 40 per cent from $205,205 thousand in H1 FY2018 to $287,043 thousand in H1 FY2019, mainly driven by an increase in income from investment, new initiative income and other income in the current half-yearly result. In H1 FY19, the operating profit was $251,194 thousand versus $182,720 thousand in H1 FY2018. The basic profit per ordinary share stood at 100.84 cents for H1 FY19 against 77.23 cents in H1 FY18.

Share Price Performance

Daily Chart as at 29th November 2019, before the market closed (Source: Thomson Reuters)

On November 29, 2019, Burford Capital Ltd shares were trading at GBX 837.00 at the time of writing before the market close (at 9:55 AM GMT), up by 0.54 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 2,045.00/GBX 380.20.

Valuation Methodology

*Peers: Man Group PLC, Schroders PLC, and Standard Life Aberdeen PLC.

Conclusion
In the previous period, the company was exposed to heightened risk and volatility. The company does not anticipate any significant negative impact of Brexit. Three bond issuances are denominated in Sterling, and thus Burford is exposed to currency risk. The company also has a minority of its investments denominated in currencies other than US dollars. The company has shown decent financial performance in the first half of the financial year 2019. Burford Capital Ltd is continuously investing in growing its operations and is planning to expand its product offerings in the near future.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from $82 million in FY14 to $425million in FY18. Compounded annual growth rate (CAGR) stood at 50.88 per cent.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 827.00 (as on 29^th November 2019, at 8:15 AM GMT) with single-digit upside potential based 10.00x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).

Hunting Plc

Hunting PLC (LON: HTG) is an international energy services provider with a portfolio that is dedicated to the wellbore and a distinct ability to manufacture high tolerance products.

Q3 FY2019 Trading Update
On 29th October 2019, Hunting announced its third-quarter trading update. In the third quarter of 2019, there is an overall net decrease in the group’s profit against the first and second quarters of 2019. In the drilling market, the management of the company foresees a slowing across North America in Q4 FY19 as well, which will further weigh on the results of the H2 FY19. During the year 2019, the new technology launched by the group, comprise the T-Set One setting tool and the E-SUB Perforating System, both are witnessing decent client traction. The company’s H-1 and H-2 Perforating Gun Systems sales continue to add value to the group’s revenues and show a greater share of Titan’s overall gun sales revenue. At the end of Q3 FY19, the net cash, excluding lease liabilities, was $58.5 million. The interim dividend per share of 5.0 cents, was paid on 23rd October 2019.

Share Price Performance

Daily Chart as at 29th November 2019, before the market closed (Source: Thomson Reuters)

On November 29, 2019, Hunting Plc shares were trading at GBX 402.80 at the time of writing before the market close (at 11:00 AM GMT), down by 0.54 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 657.00/GBX 384.50.

Valuation Methodology
 
 
*Peers: Weir Group Plc, Tullow Oil Plc, John Wood Group Plc and Cairn Energy Plc.

Conclusion
The company remains focused on the ability to respond to the commodity price and geopolitical volatility. However, the company stated that the near-term outlook remained uncertain, given the instability of the market backdrop, and the onshore market remained highly competitive. The company remains well-positioned to capture opportunities in the current market with a strong presence in upstream equipment and service markets, a healthy balance sheet and tightly managed cost base.

Over the course of 4 years (FY14 - FY18), the company’s net income surged from $69.2 million in FY14 to $89.3 million in FY18. Compounded annual growth rate (CAGR) stood at 6.58 per cent.

Based on the healthy prospects of the group, and supported by valuation done using the above method, we have given a “BUY” recommendation at the current price of GBX 402.60 (as on 29th November 2019, before the market close at 10:51 AM GMT) with single-digit upside potential, based on the 13.26x NTM Price/Earnings multiple (approx.) on the FY19E earnings per share (approx.).

IQE Plc

IQE Plc (IQE) is a designer and manufacturer of epiwafer products driving connected 5G technologies and is recognised as the leading global supplier of advanced wafer products and wafer services to the semiconductor industry, with a global footprint spanning Europe, Asia and the USA.

Trading Update
In the trading update for the full year ended 31 December 2019, the company reported that a mid-single digit adjusted operating loss was now expected due to revenues being slightly below the previous guidance range to between £136 million and £142 million, compared to the previous guidance range of £140 million to £160 million. The net debt position at year end is expected to be between £15 million to £20 million, and capex would be towards the bottom end of the previous guidance of £30-40 million.

Share Price Performance

Daily Chart as at 29th November 2019, before the market closed (Source: Thomson Reuters)

On November 29, 2019, IQE Plc shares were trading at GBX 48.56 at the time of writing before the market close (at 11:21 AM GMT), down by 0.74 per cent against the last day closing price. Stock's 52 weeks High and Low are GBX 99.84/GBX 40.86.

Valuation Methodology
 
*Peers: Solon Se, Manz AG, SDL Plc, NCC Group Plc and Dialog Semiconductor Plc.

Conclusion
Driven by an expanding Asian market opportunities for both Photonics and Wireless products, demand for GaN to meet accelerating 5G infrastructure deployments, expected content gains in an expanding market for 3D sensing, the company remained optimistic about a return to growth but noted that outlook for year 2020 included a seasonally weak Q1 data. Moreover, it has made significant strategic and operational progress with its global expansion projects and remained confident about its ability to adapt to global supply chain shifts, coupled with a unique breadth of compound semiconductor materials experience and IP portfolio.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from £112 million in FY14 to £156.3 million in FY18. Compounded annual growth rate (CAGR) stood at 8.69 per cent.

Based on the decent prospects which are supported by valuation done using the above method, we have given a “SPECULATIVE BUY” recommendation at the current price of GBX 48.28 (as on 29^th November 2019, at 8:40 AM GMT) with single-digit upside potential based 1.40x NTM Price/Book Value (approx.) on FY19E book value per share (approx.).
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.Currency exchange rate taken for 1 USD = 0.77487 GBP.

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