Fresnillo PLC

Fresnillo PLC (LON: FRES) is a Mexico-based leading precious metals company. The company produces mainly gold and silver from mines. It is listed on the Mexican Bolsa and London Stock Exchange. The company has seven operating mines, two development projects and three exploration prospects.

On 3^rd March 2020, the company will announce its full-year 2019 results.

Production Update Q4 FY2019

(Source: Production Report, Company Filings, LSE)

The company provides the production update for the three months ended 31^st December 2019. In the fourth quarter of 2019, the total silver production increased by 3.7% to 13.8 moz as compared with the corresponding period of the last year (3Q FY19: 13.3 moz), due to higher ore grades at both Saucito and San Julián Disseminated Ore Body (DOB). While the full year 2019 silver production decreased by 11.6% to 54.6 moz (including Silverstream), against the previous year (FY18: 61.8 moz), driven by the expected lower ore grades at Fresnillo and San Julián Veins and DOB, as well as lower than anticipated ore grade at Saucito. The gold production for the fourth quarter of 2019 surged by 11.4% to 233.7 koz against the previous period (Q3 FY19: 209.7 koz), driven by an overall rate of recovery at Herradura and higher volume of ore processed, ore grade, while also increase of 0.7% from the corresponding period of the last year. The full-year 2019 by-product lead production surged by 4.8% against the previous year (FY18) driven by higher recovery rate at San Julián DOB, a recovery rate and higher ore grade at Ciénega, and a higher ore grade at Fresnillo. By-product zinc production for the full year 2019 rose by 4.6% as compared with the previous year (FY18). This increase was driven by recovery rate and higher ore grade at Ciénega.

Share Price Performance

Daily Chart as at February-07-20, before the market closed (Source: Thomson Reuters)

Fresnillo PLC shares were trading at GBX 655.80 (at the time of writing before the market close, at 12:40 PM GMT) on 7^th February 2020 and were up by 0.306% versus the previous day closing price.Stock 52 weeks High and Low are GBX 1,028/GBX 536.80. The group’s stock is reflecting the higher volatility as against the benchmark index based on the company’s beta of 1.06. The stock price has given positive 2.15 per cent returns during the last month.

Conclusion
In 2020, the silver production (including Silverstream) anticipated being in the range of 51-56 moz and the gold production anticipated to be in the range of 815-900 koz.In the current quarter, gold and silver production increased from the prior quarter (Q3 FY19). The company started to see the impact of the performance enhancement plan, which comprises dilution control and raising development rates, intensive infill drilling to improve the certainty of the geological model, together with actions to address contractor equipment availability. The full-year 2019 gold and silver production is in line with the updated guidance. The company’s development pipeline is progressing well, construction of new mines is on track. The company’s outlook is positive for the long term, and this company provides an opportunity to invest for good returns. The company is also working on dilution control and raising development rates which could improve the overall performance of the business.

Based on the decent growth prospects, we have given a “HOLD” recommendation at the closing price of GBX 653.80 (as on 6^th February 2020).

Pets at Home Group PLC

Pets at Home Group PLC (LON: PETS) is a leading per care company in the United Kingdom. The group is a retailer of pet products, pet food, and other pet-related services. The company markets its products for cats, dogs, fish, birds, and other pets through pet retail stores.

Recent News
On 7^th February 2020,the company announced the conclusion of the process announced in November 2019, to appoint a successor to outgoing Tony DeNunzio, as a Non-Executive Chairman. The group also announced Ian Burke for the appointment of the role.

Trading Statement (as on 22^nd January 2020)
The company announced a scheduled trading statement for the twelve-week period from 11 October 2019 to 2 January 2020. The total group revenue for the third quarter of 2020 increased by 7.9% to £255.9 millionas compared with the corresponding period of the last year, driven by an increase in retail revenue of 7.2%, with an increase of 23.4% in omnichannel and also surge in vet group revenue of 14.4%. Across all vet practices, the First Opinion client sales increased by 8.6 per cent, with mature practices increasing ahead of the current market sentiment. On the like-for-like (LfL) basis, the company’s revenue surged by 7.2% in the current quarter against the same period last year. This increase was driven by retail revenue growth of 7% (LfL basis) and vet group revenue growth of 8.9% (LfL basis), with Joint Venture fee income increased by 5.6% at a like-for-like basis.

Share Price Performance

Daily Chart as at February-07-20, before the market closed (Source: Thomson Reuters)

Pets at Home Group PLC shares were trading at GBX 304 (at the time of writing before the market close, at 1:57 PM GMT) on 7^th February 2020 and were down by 0.91% versus the previous day closing price. Stock 52 weeks High and Low are GBX 309.40/GBX 125. The group’s stock is reflecting the inverse volatility as against the benchmark index based on the company’s beta of negative 0.08.

Valuation Methodology
 

Conclusion
In the Vet group segment, activities were impacted due to proposed adjustments made to fee arrangements for continuing Joint Venture practices.The United Kingdom market stays resilient in pet care. For the financial year 2020, the group anticipations for underlying PBT, before the impact of IFRS16, stays in line with existing market consensus. The guidance for 2020 reflects the impact of certain pre-openings costs relating to the Specialist Referral division, continuing investment in new customer acquisition, and Joint Venture fee adjustments.

The company has shown decent trading performance in the third quarter of the financial year 2020 and expects to carry the same momentum in the full-year 2020 as well.Rising labour costs in the UK, intense competition and surge in shoplifting losses could limit the company's growth prospects. The company plans to buy out several JV (Joint Venture) vet practices, while performance in the ongoing estate remains decent. In the future, the company can face uncertainty across the broader retail sector. Moreover, the company is trading near a 52-week high, raising doubts at its upside potential at the current prices.

On the basis of risk elements as discussed above and supported by valuation done using the above method, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 306.80 (as on 6^th February 2020), while we look for any upcoming catalysts.
 
*All forecasted figures and Peer information have been taken from Thomson Reuters.

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