Centamin PLC

Centamin PLC (LON: CEY) is an FTSE 250 listed Gold Mining Company, specialises in the exploration and development of minerals.

Investment Rationale – SPECULATIVE BUY at GBX 80.74

• Sukari Reserve Update: On 8 December 2021, Centamin unveiled the delivery of excellent results at Sukari Reserve, with a net 1.1-million-ounce Mineral Reserve growth.
• Gold Prices: The weak nonfarm payrolls in November 2021 and the US Dollar weakening amid Fed’s statement regarding asset tapering and interest rates hikes can lead to an uptick in gold prices.
• Healthy Financial Position: CEY has no debt or hedging on the balance sheet, and it has robust liquidity of US$256.1 million (as on 30 September 2021).
• Technical Indicator: From a technical standpoint, the stock price is hovering close to the lower standard deviation of the Bolling Bands, while the 14-day RSI (~24.72) is in the oversold zone.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Cash Flow, and Price/Book valuation multiples are quite undervalued against the industry median of the Basic Materials sector.

Risk Assessments

• Macroeconomic Uncertainties: Rising bond yield and US Dollar can dampen the price of gold.
• Pandemic Related Uncertainties: The Global Covid-19 pandemic could suspend operations and increase labour absenteeism.
  

Q3 FY21 Trading Update (for the three months ended 30 September 2021, as on 19 October 2021)

 (Source: Company Website)

• Solid Operational Delivery: During Q3 FY21, gold production was slightly ahead of schedule at 103,546 ounces (oz), and thus, remained on track to meet its FY21 guidance.
• Revenue and Costs: CEY generated revenue of US$182.9 million in Q3 FY21 through gold sales of 103,514 oz.
• Strong Free Cash Flow: The Group generated adjusted Group free cash flow of US$6.9 million, which was ahead of budget, reflecting stronger gold price

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

Centamin is a cash generative business with active investments to drive future growth, which ensures consistent dividend returns to shareholders. The Company has maintained its gold production and cost guidance for FY21 as 400,000 to 430,000 ounces (oz) at cash costs of US$800 to US$900 per oz produced. The stock made a 52 week High and Low of GBX 137.12 and GBX 80.42, respectively.

Based on the promising gold price environment, sound profitability, industry leading dividend returns, supported by valuation conduced above, we have given a “SPECULATIVE BUY” recommendation on Centamin PLC at the closing market price of GBX 80.74 (as on 15 December 2021), with lower double-digit upside potential based on 11.65x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

Studio Retail Group PLC

Studio Retail Group PLC (LON: STU) is a FTSE All-Share listed Company that is involved in the retailing and distribution of home shopping and education products. 

Investment Rationale – SPECULATIVE BUY at GBX 162.00

• Solid Platform for Growth: Studio Retail has a clear growth strategy fuelled by its service enhancements, digital capabilities, and utilizing data to match consumer needs. Moreover, the sale of Findel Education has emerged the business with a stronger financial position.
• Positive Guidance: The adjusted profit before tax is now expected to be in the range of £35-40 million for FY22. It is progressing well to achieve its medium-term goal of £1 billion in revenue.
• Technical Indicator: From a technical standpoint, 14-day RSI (~17.62) is in the oversold territory, while the stock price has gone below the lower Bollinger Band.
• Undervalued Multiples: On a forward 12-month basis – Price/Earnings, Price/Cash Flow, and Price/Book valuation multiples are quite undervalued against the median of the Diversified Retail sector.

Risk Assessments

• Pandemic Impact: Daily COVID cases in the UK surged to a record 78,610, prompting a warning against social mixing from the government’s chief medical adviser.
• Inflationary Pressure: British consumer price inflation surged to its highest in more than 10 years in November, jumping to 5.1% from October's 4.2%.

Financial Highlights (for the 26 weeks ended 24 September 2021, as on 25 November 2021)

 (Source: Company Website)

• Solid H1 Performance: During H1 FY22, Group revenue surged 3.2% on prior year, and recorded growth in both product revenue and financial service revenue.
• Disposal: The sale of Findel Education was completed in April 2021, for headline consideration of £30 million.
• Better Financial Position: Following the disposal of Findel, the core net debt reduced to £20.8 million (September 2020: £45.2 million).

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

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

Conclusion

STU plans to increase the Studio's value proposition to attract more customers, offers a personalised financial service proposition, and seek flexible payment options.  Notwithstanding, STU is trading as a penny stock, and it didn’t recommend any interim dividend due to continued losses. Therefore, investors should gauge their risk-return profile before punting on this stock. The stock made a 52-week high and low of GBX 319.00 and GBX 160.00, respectively.

Based on the revenue growth, reduced core net debt, current trading, and bright outlook, we have given a “SPECULATIVE BUY” recommendation on Studio Retail Group PLC at the closing market price of GBX 162.00 (as on 15 December 2021), with lower double-digit upside potential based on 5.69x 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.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.