Smith & Nephew PLC

Smith & Nephew PLC (LON: SN.) is an FTSE 100 index listed medical technology company with global operations.

The Company had paid an interim dividend of 14.40 US cents per share on 27 October 2021, while the ex-dividend date was 30 September 2021.

The Company will release full-year FY21 results on 22 February 2022.

Investment Rationale – BUY at GBX 1,284.73

• Decent Q3 FY21 Top-Line Business: The Company’s business segments, Advanced Wound Management & Sports Medicine & ENT, witnessed a decent revenue growth of around 12.1% and 8.3%, respectively, during Q3 FY21.
• Modest Long-Term Guidance: targets organic revenue growth ranging from 4% to 6% by 2024. Meanwhile, the Company aimed on rebuilding trading margin of at least 21% by 2024.
• Robust Profitability: On the profitability front, the earnings per share jumped more than 100% from 11.50 US cents per share during H1 FY20 to 23.4 US cents per share for H1 FY21.
• Technical Indicator: From a technical standpoint, the current market price was trading higher than the 20-day EMA (GBX 1,257.12), reflecting a bullish price momentum.

Key Risks

• UK GDP: The UK economy witnessed a disappointing GDP growth of around 0.1% during October 2021, less than the estimates of 0.4%.
• Reduced Guidance: The Company expected to achieve the low end of full year guidance because of the adverse impact of Delta variant and supply constraints.

Strategy Update (as of 16 December 2021)

• Divisional Performance: The Company had demonstrated profitable growth in Advanced Wound Management and Sports Medicine franchises, which represents 60% of the portfolio.
• Share Buyback: The Company aimed to distribute surplus capital to shareholders through annual share buy-back ranging from USD 250 million to USD 300 million for 2022.

One Year Share Price Chart

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

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

Conclusion

The Company would seek increased market opportunities by acquiring new technologies and expanding in higher growth segments that aligned with the strategic objectives.  Moreover, the Company aimed to meet lower end of FY21 revenue growth guidance ranging from 10% to 13%. Furthermore, SN also anticipates FY21 trading profit margin falling between 18% and 19%. The stock made a 52-week High and Low of GBX 1,681.50 and GBX 1,197.50, respectively.

Based on the decent Q3 FY21 top-line business, positive long-term guidance, and support from the valuation conducted above, we have given a “BUY” recommendation on Smith & Nephew PLC at the current market price of GBX 1,284.73 (as on 30 December 2021 at 08:43 AM GMT), with lower double-digit upside potential based on 24.94x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

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.

POLY had paid an interim dividend of 45 US cents per share attributable for H1 FY21 on 30 September 2021, with an ex-dividend date of 09 September 2021.

Investment Rationale – BUY at GBX 1,281.00

• Favorable Gold Price: Most recently, the gold price breached one-month high levels as rising inflation boosted the demand for the precious metal.
• Decent Guidance: 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.
• Good Shareholders’ Returns: The dividend yield of POLY remained significantly ahead of the Precious Metals & Mining industry as of 30 November 2021.
• Technical Indicators: From a technical standpoint, the stock price is hovering around the lower Bollinger band, indicating an upside potential in the stock price.

Key Risks

• Capital Expenditure: The construction at POX-2, Nezhda and Kutyn had resulted in an increased Capex during H1 FY21
• Rising Bond Yields: Rising US Treasury Bond Yield can dampen the price of gold. Moreover, the slowdown in industrial production in China can also impact the demand for precious metals.

Recent News

Development Approval: On 08 November 2021, POLY approved a USD 447 million investment in the construction of the Veduga gold project. Meanwhile, the first production is expected by Q2 FY25.

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

Polymetal demonstrated strong financial performance in H1 FY21, driven by steady operational delivery and favorable commodity prices. Moreover, the Return on Equity and Return on Assets demonstrated a significant improvement of 100 basis points during H1 FY21. The Company had managed to grow its interim dividend year-on-year by approximately 12.50% during H1 FY21. The stock made a 52-week High and Low of GBX 1,857.00 and GBX 1,222.00, 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 1,281.00 (as on 30 December 2021, at 8:40 AM GMT), with lower double-digit upside potential based on 9.81x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Hikma Pharmaceuticals PLC

Hikma Pharmaceuticals PLC (LON: HIK) is an FTSE 100 index listed United Kingdom-based Pharmaceuticals and Biotechnology Company, which specializes in the business of developing, manufacturing, and marketing a portfolio of branded and non-branded generic medicines.

HIK had paid an interim dividend of 18 US cents per share attributable for H1 FY21 on 20 September 2021, with an ex-dividend date of 19 August 2021.

Rationale for Valuation – BUY at GBX 2,227.00

• Strong H1 FY21 Financial Performance: HIK reported significant revenue and profit growth during H1 FY21, with further progress in increasing the availability of essential medicines.
• Acquisition Benefits: With the acquisition of Custopharm, the Company had strengthened its injectable product portfolio with 13 approved products and additional pipeline products.
• Recent Commercialization: HIK would further cement its position into the US markets by entering into an exclusive license agreement to commercialize Richter's denosumab.
• Technical Indicator: From a technical standpoint, the MACD line remained above the signal line, reflecting a bullish price momentum.
• Impressive Shareholders’ Returns: Boosted by the robust profitability growth, the interim dividend grew by around 13% during H1 FY21.

Key Risks

• Market Risk: The Group operates in highly competitive markets, and therefore, the increased price competition could impact future profit margins.
• Other Significant Risks: The commercial acceptability of its products might be significantly affected by the political actions, economic factors, regulatory changes, societal pressures, and competition level.
• Reduced Cash Flow: The cash flow from the operating activities plunged by around 23% during H1 FY21.

H1 FY21 Financial Highlights (for the 6-month period ended 30 June 2021, as on 06 August 2021)

(Source: Company result)

• Encouraging Financial Performance: HIK’s top-line revenue grew by around 7% and bottom-line profitability rose by approximately 17% during H1 FY21.
• Decent Leverage Position: At the end of H1 FY21, Hikma maintained low leverage with net debt to core EBITDA of 0.9x (31 December 2020. 0.9x).
• Product Launches: The Company launched ~87 new products in H1 FY21.

One Year Share Price Chart

(Source: Refinitiv, Analysis conducted by Kalkine Group)

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

Conclusion

The Company improved its outlook and expected FY21 growth in all three divisions - Injectables (revenue growth in mid-single-digit), generics (expect revenue to be in the range of USD 810 million to USD 830 million) and Branded (expects revenue to grow in mid-single-digit on constant currency basis). Meanwhile, the Company anticipates the acquisition to remain accretive to the Injectables operating margin by generating Custopharm’s FY21 revenue of USD 80 million. The stock made a 52-week high and low of GBX 2,703.00 and GBX 2,158.00, respectively.

Based on the recent commercialization, resilient financial performance, and support from the valuation as done using the above method, we have given a “BUY” recommendation on Hikma Pharmaceuticals PLC at the current market price of GBX 2,227.00 (as on 30 December 2021 at 08:33 AM GMT), with lower double-digit upside potential based on 18.34x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Shanta Gold Ltd

Shanta Gold Limited (LON: SHG) is an FTSE AIM All-Share listed Company, engaged in the production and exploration of Gold in Tanzania. The Company was incorporated in 2001, currently focussed on the New Luika Gold Mine, located in southwest Tanzania.

SHG had paid an interim dividend of 0.10 pence per share on 29 October 2021, while the ex-dividend date was 07 October 2021.

Investment Rationale – Speculative Buy at GBX 8.31

• Positive Industry Outlook: Several factors such as rising inflation worldwide, the spread of Omicron variant of the Covid-19 pandemic and increasing industrial demand for Gold may support gold price over the medium term.
• Robust Profitability: On the profitability front, the profit after taxation witnessed a jump of approximately 200% from USD 1.04 million for H1 FY20 to USD 3.13 million during H1 FY21.
• Strong Liquidity: In terms of liquidity, the current ratio and the quick ratio remained more than the respective industry median during H1 FY21.
• Technical Indicators: From a technical standpoint, the 14-days RSI stood at ~20.94, indicating an upside potential in the stock price.

Key Risks

• Increase in US Dollar & Rising Treasury Yields: The strengthening of the US dollar and rise in the treasury yields may create pressure on the gold price.
• Reduced Guidance: SHG had reduced its FY21 production guidance from a range of 60,000 to 65,000 ounces to a range of 55,000 to 57,000 ounces.

Recent News

Mine Update: On 07 December 2021, SHG had highlighted of operational headwinds related to the supply by a 3rd party vendor of an unreliable emulsion product.

Q3 FY21 Production Highlights (for the three months ended 30 September 2021, as on 21 October 2021)

• Gold Production: The total gold production stood at 14,194 ounces during Q3 FY21, while it was 14,201 ounces for the prior quarter.
• Net Cash: The Company’s net cash stood at USD 19.50 million at the end of Q3 FY21, while it was USD 24.10 million as of 30 June 2021.
• Resource Estimate: SHG had completed 30-45% of the total planned drilling at West Kenya. Moreover, it remained committed to announce a total resource estimate in Q1 2022.

One Year Share Price Chart

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

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

Conclusion

The Company seems well funded with cash and available liquidity of USD 24.7 million as of 30 November 2021. SHG had completed the first blast of mining material at Gold Tree deposit on 15 October 2021. On the production front, the Company had a five-year strategic plan to transform the business into a 100,000+ ounces gold producer, with the extension of the reserve-based mine life at New Luika and Singida. The stock made a 52-week High and Low of GBX 19.50 and GBX 8.25, respectively.

Based on the solid profitability, favorable industry outlook, with support from the valuation conducted above, we have given a “Speculative Buy” recommendation on Shanta Gold Ltd at the current price of GBX 8.31 (as on 30 December 2021, at 10:00 AM GMT), with lower double-digit upside potential based on 8.46x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Greencoat Renewables PLC

Greencoat Renewables PLC (LON: GRP) is an FTSE AIM 100 index listed Ireland-based company that invests in renewable energy infrastructure assets. 

GRP had paid a quarterly dividend of 1.51 Euro cents per share on 26 November 2021, while the ex-dividend date was 04 November 2021.

Rationale for Valuation – Speculative Buy at EUR 1.11

• Robust Net Cash Generation: The Company had delivered €40.2 million of net cash generation as the portfolio generated 745GWh of electricity during H1 FY21, while it was 688GWh for H1 FY20.
• Increase in NAV: The NAV per share increased slightly in the period from 101.1 Eurocents per share on 30 June 2021 to 101.4 Eurocents per share as of 30 September 2021.

• Technical Indicator: From a technical standpoint, the MACD line remained above the signal line, reflecting a bullish price momentum.
• Key Geographic Presence: GRP had expanded its footprints into the key Spanish markets with the acquisition of 50MW solar farm from Lightsource bp. Meanwhile, the Company expects commencement of commercial operations in Q4 2022.

Key Risks

• Government Policy: Any unfavorable change in government policy on renewable energy may impact the top-line business of the Company.
• Other Significant Risks: The lower-than-expected lifespan of the wind turbines can adversely impact the business scalability to a certain extent.

H1 FY21 Financial Highlights (for the 6-month period ended 30 June 2021, as on 06 August 2021)

 (Source: Company result)

• Fundraising Activity: The Company recently completed fundraising activity in the amount of €165 million at the Placing Price of €1.11 to be utilized in ear-term investment opportunities under consideration in both wind and solar assets in Ireland and continental European markets.
• First Transaction in Swedish Market: The Company had acquired 101.1 MW wind farm in Norrbotten County, Sweden from Enercon. Moreover, it had increased total installed generating capacity to 787 MW.
• Dividend Cash Cover: The dividend cash cover ratio remained 1.8x during the period.

One Year Share Price Chart

(Source: Refinitiv, Analysis conducted by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

GRP had successfully entered the Nordic wind market with the commitment to acquire the 43MW Kokkoneva wind farm as it becomes operational in the second quarter of 2022. Moreover, the Company had shown significant upward trend in top-line business and bottom-line profitability for H1 FY21. Overall, GRP had enhanced its ability to pursue a strong near and medium-term pipeline of opportunities in both Ireland and Europe. The stock made a 52-week high and low of EUR 1.27 and EUR 1.06, respectively.

Based on the robust net cash generation and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Greencoat Renewables PLC at the current market price of EUR 1.11 (as on 30 December 2021 at 08:00 AM GMT), with lower double-digit upside potential based on 18.81x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

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

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