Centamin PLC – Growing with higher gold prices.

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 current production capacity of 500,000 ounces per annum.

The Company expects to release its Q3 FY20 Report on 21 October 2020.

Investment Rationale – Buy at GBX 153.40

• The key trading multiples (Price/Earnings, Price/Cash Flow and Price/Book) multiples are currently undervalued compared to corresponding multiples of the Basic Materials industry.
• From a technical standpoint, 14-Day RSI (17.00) is in the oversold zone and supporting the upside potential.
• Over the past one year, CEY’s stock has outperformed the benchmark index by delivering a positive ~31.75% return against the return of ~6.21% given by FTSE Mid 250 index.
• Over the past two years, (H1 FY18 to H1 FY20), Gross Profit has surged at a CAGR of 119.89%.

Risk Assessments

• 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, and thus, the operation costs.

Recent News

2 October 2020: Regarding Sukari operations, the Company updated that it has deferred open pit mining in the Sukari open pit Stage 4 West wall to safeguard the health and safety of the workforce. The preliminary gold production for three months ended 30 September was nearly 1 20,000 ounces.

Interim Results - for the six months ended 30 June 2020 (as on 4 August)

(Source: Company Website)

• During H1 FY20, the Company delivered a strong operating and financial performance despite Covid-19 challenges.
• The revenue and profitability growth were primarily supported by the 27% year-on-year increase in average realised gold prices.
• The interim dividend increased by 50% year-on-year to 6 US cents per share.
• The All-in sustaining costs (AISC) also remained within the annual guidance range of US$870-920 per ounce.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has been on track to meet the FY20 production guidance of between 510,000-525,000 ounces of gold, while the cost guidance is likely to be in between US$870-920 per ounce sold in AISC. The capital expenditure for FY20 shall remain unchanged at US$150-170 million, while the completion of the first phase Sukari Life of Asset review is on track for H2 FY20. In a nutshell, it is aiming to generate a significant sustainable return for the shareholders. Stock 52 week High and Low were GBX 233.30 and GBX 88.28, respectively.

Based on the factors discussed above, we have given a “Buy” recommendation on Centamin PLC at the current market price of GBX 153.40 (as on 8 October 2020, before the market close at 8.34 AM GMT+1) with lower double-digit upside potential based on 14.90x Price/NTM Earnings (approx.) on FY20E Earnings Per Share (approx.).

Talktalk Telecom Group PLC – Mulling take-private offer from Toscafund Asset Management.

Talktalk Telecom Group PLC (LON: TALK) is FTSE 250 listed Business-to-Business (B2B) telecom services provider, which offers services related to fibre broadband, standard broadband, TV mobile services, and fixed landline.

Investment Rationale – Avoid at GBX 101.42

• The key trading multiples (EV/EBITDA, Price/Cash Flow and Price/Book) multiples are currently overvalued compared to corresponding multiples of the Telecommunication Services industry.
• From a technical standpoint, 14-Day RSI (87.41) is in the overbought zone, indicating a likelihood of short-term correction.
• Since FY15 revenue has been constantly declining every year, while the Gross Margin (51.00%) and EBITDA (18.90%) stood lower than the industry median in FY20.

Risk Assessments

• The macroeconomic uncertainties can create significant liquidity and customer credit risk.
• The lower Voice usage could impact ARPU and profitability.
• Further, the disruption caused by Covid-19 pandemic can impact the cost base and cash flow generation.

Recent News

8 October 2020: Post receiving a proposal from Toscafund Asset Management LLP regarding a possible cash offer for acquiring entire issued capital at GBX 97 per share, the Board of TALK has agreed to consider the terms of the proposal. The further announcements will be made on 5 November 2020.

Trading Update – Q1 FY21 (for the 3 months to 30 June 2020, as on 21 July 2020)

• During Q1 FY20, the headline revenue slightly contracted to £358 million (Q1 FY20: £387 million) due to the decline in Voice usage and Covid-19 impact.
• However, the Company witnessed significant improvement in ARPU in June and July 2020 while the B2B Ethernet trading recovered to pre-COVID-19 levels.
• The Company also launched 'Business Grade Homeworker' packages and observed strong sales.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

As Talktalk agreed to consider the take-private offer from Toscafund at GBX 97, the stock price jumped to overbought zone (according to 14-Day RSI), and hence, the short-term consolidation can be expected. Moreover, the Company has already been facing fierce competition and economic pressure, which makes the stock a quite risky bet. The short-term disruption from Covid-19 pandemic is also expected. Stock 52 week High and Low were GBX 124.84 and GBX 67.20, respectively.

Based on the factors discussed above, we have given a “Avoid” recommendation on Talktalk Telecom Group PLC at the current market price of GBX 101.42 (as on 8 October 2020, before the market close at 1.24 PM GMT+1).

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

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

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