Polymetal International PLC

Polymetal International PLC (LON: POLY) is an FTSE 100 index listed Company, which has a portfolio of nine producing gold and silver mines.

Investment Rationale – BUY at GBX 1,183.00

• Mineral Update: On 24 January 2022, Polymetal announced the Novopetrovsky initial Mineral Resource update, which is estimated to have a deposit of 2.4 Moz of gold equivalent at an average grade of 8.0 g/t gold equivalent.
• Decent Guidance: POLY has reiterated its FY21 production target of 1.5 Moz (million ounces) at full-year cost guidance of US$700-750 per gold equivalent ounces.
• Technical Indicators: From a technical standpoint, the MACD line has given a bullish crossover against the signal line, reflecting a bullish price potential.
• Better Profitability: In H1 FY21, POLY’s gross margin and net margin were 56.8% and 32.9%, respectively. Both the margins are higher than the industry median.

Key Risks

• Macroeconomic Uncertainties: The Gold prices are highly vulnerable to the rising bond yield and US Dollar.
• Pandemic Related Uncertainties: The Global Covid-19 pandemic could suspend operations and increase labour absenteeism.
  

Production Highlights (for the three months ended 30 September 2021, as on 26 October 2021)

 (Source: Company Website)

• Marginal decline in Production: POLY had shown around 8% year-on-year drop in the total gold equivalent production to 437 Koz during Q3 FY21 as it generated all-time quarterly production record during Q3 FY20.
• Maiden Production: The Company had managed to produce first concentrate from Nezhda on 16 October 2021. It remained two weeks ahead of the previously announced target date of 01 November 2021.
• Decent Top-Line Business: On a 9-months basis, the Company’s top-line business grew by around 4% to USD 2.09 billion during 9M FY21.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

For the long-term, POLY's investments are attractively priced with high-quality assets, which enable them to generate consistent free cash flow and deliver sustainable returns for shareholders. Polymetal demonstrated strong financial performance in FY21 so far, driven by steady operational delivery and favourable commodity prices. Subsequently, POLY has reiterated its FY21 production target of 1.5 Moz (million ounces) at full-year cost guidance of USD 700-750 per gold equivalent ounces with the announcement of Q3 FY21 production update. The stock made a 52-week High and Low of GBX 1,737.00 and GBX 1,098.50, respectively.

Based on the solid production results, revenue increase, reiterated production guidance, with support from the valuation conducted above, we have given a “BUY” recommendation on Polymetal International PLC at the current price of GBX 1,183.00 (as of 24 January 2022, at 9:25 AM GMT), with lower double-digit upside potential based on 9.08x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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