European Metals Holdings Ltd

European Metals Holdings Ltd (LON: EMH) is a FTSE AIM All-Share listed mineral exploration and development entity.

Rationale for Valuation – SELL at GBX 81.00

• Principal Uncertainties: The ongoing commodity price volatility, inability to discover substantial resources, strict environmental compliance, production stoppages, and extreme weather conditions can impact the EMH’s growth trajectory.
• Macroeconomic Uncertainties: The prolonged inflationary pressure, persistent supply chain concerns, and new coronavirus variant in South Africa can create operational difficulties for the Company.
• Weak Fundamentals: EMH continued to report significant losses, and thus, all profitability margins are in the negative territory. However, industry median for all key profitability margins is in decent positive range.
• Technical Indicator: From a technical standpoint, Bollinger Bands suggests that the price is hovering close to the upper Bollinger Band, while the 14-day RSI (~68.35) is also in the overbought position.

Key Risks

• Operational Difficulties: The performance is also dependent on the production stoppages, equipment failures and supply chain amid the Covid-19 crisis.
• Pandemic Impact: The new coronavirus variant identified in South Africa has impacted the market sentiment, which can hurt the overstrained position of Essentra.

Q3 Trading Update (as on 29 October 2021)

• Drilling Completion: It completed drilling at Cinovec South, comprising 22 diamond drill core holes for 6,622 metres.
• Resources: The contained lithium in the resource increased from 7.2 million tonnes to 7.39 million tonnes LCE.
• Appointment: Walter Mädel was appointed as Operations Manager of the Cinovec Lithium Project.

One Year Share Price Chart

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

Conclusion

EMH is a loss-making entity, and it is trading penny stock, which makes it a quite speculative counter. Moreover, the equity market can remain dented with new Covid-19 variant, rising bond yields, well-publicised inflationary pressure, labour shortage and uncertain demand outlook. As the stock has given a decent return, it is prudent to exit the prevailing market uncertainties, and book profit as per risk-return profile. The stock made a 52-week high and low of GBX 110.00 and GBX 39.00, respectively.

Based on the overstrained prices, resurgence in coronavirus cases, macroeconomic instabilities, and continued losses, we have given a “SELL” recommendation on European Metals Holdings Ltd at the closing market price of GBX 81.00 (as on 25 November 2021), while we look forward to reinvesting when the short-term economic turbulence subsides.

*The reference data in this report has been partly sourced from REFINITIV.

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