Torex Gold Resources Inc

Higher Average Realized Prices and Sustained Production to Benefit Top-line: Torex Gold Resources Inc. (TSX: TXG) is a Canadian intermediate gold producing company, engaged in the exploration, development and operation from its fully owned Morelos Gold Property. The Company will disclose its first quarter FY20 results on May 6, 2020.

Recent updates:

• On April 14, Torex Gold Resources announced that gold production of 108,530 ounces in Q1FY20. Meanwhile, gold sold during the quarter stood at 108,060 ounces at an average realized gold price of $1,570 per ounce. The company further stated that first quarter was strong especially from the production standpoint. Further, it expects to achieve itsproduction guidance of 420,000 to 480,000 ounces of gold in 2020 despite disruption from COVID-19. Plant throughput averaged at 12,460 tpd. Underground ore mined averaged 1,110 tpd. Open pit ore mined averaged at 19,080 tpd.

• On April 2, Torex Gold Resources announced that it temporarily suspending operations and production at its El Limón Guajes mine until April 30, 2020.

• The Company will disclose its first quarter FY20 results on May 6, 2020.

FY19 Financial Highlights: TXG came up with an impressive set of numbers, thanks to the improved realized gold price followed by the higher gold sales. Torex Gold Resources Inc. reported revenue of US$ 640.8 million, as compared to US$ 442.9 million, primarily driven by higher grades (gold) processed, increase in total throughput, and significant rise in realization. Earnings from mine operations stood at US$ 160.9 million, jumped from US$ 108.2 million in FY18. The growth was driven by improvement in all-in sustaining costs (US$ 805 per oz vs US$ 964 per oz in FY19). Net income soared to US$ 71.2 million, from US$23.2 million in the previous year, thanks to higher operating income, marginal improvement in general & administrative expenses and finance costs and an income tax recovery.

FY19 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology (Illustrative): P/CF-based approach

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The stock of TXG generated a handsome return of ~23% in the past one year. However, the stock has fallen by about 22% so far this year, which presents a good entry point. We expect TXG to continue to benefit from higher average realized prices and sustained production despite disruption from the COVID-19 outbreak. Further, a decline in all-in sustaining costs is a positive and is likely to supports margins. We have valued the stock using P/CF based relative valuation methodology. We have taken peers like, Lundin Gold Inc (TSX: LUG), New Gold Inc (TSX: NGD), Pretium Resources Inc (TSX: PVG) etc. and arrived at a target price which implies a low-double digit upside (in % terms) from the current level. Hence, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 15.83 as on April 21, 2020.

TXG Daily Price Chart (Source: Thomson Reuters)

The Stars Group

The Stars Group Inc. (TSX: TSGI) is world’s leading iGaming destination. The group owns and licenses plethora of gaming brands, including PokerStars, betStars, PokerStars Casino, Sky Bet, FOX bet, Full Tilt, BetEasy and many more. The company is a leader in online and mobile betting, casino, poker, and other gaming-related offerings. Also, the company is holds licenses or approvals in 23 jurisdictions across the world.

Recent updates:

• On April 17, the company, in a business update, announced that it recorded stellar revenues in the first quarter. The Stars Group saw a 27% y-o-y increase in its revenues over the prior year. Adjusted EBITDA is likely to increase by 51% y-o-y and expected to be in the range of US$ 291 million to US$ 297 million. Adjusted net earnings are expected to jump by 8% y-o-y and could be in the range of US$ 185 million – US$ 191 million.

• On March 31, TSGI announced that it has got clearance from the Competition & Markets authority for its combination with Flutter Entertainment.

Financial Highlights: The Stars Group posted revenues of US$ 2.53 billion in FY19, up about 24% y-o-y. The strong growth in top line reflects benefits from acquisition. Moreover, continued momentum in the underlying business in the UK and Australia further supported revenue growth. However, weakness in the International segment remained a drag. Gross profit (excluding depreciation and amortization) jumped 16.9% y-o-y to US$ 1.84 billion. Acquisitions added US$ 412.7 million to the company’s gross profit dollars. However, gross margin fell 6.2% to 72.6%, reflecting higher duties and adverse mix. Adjusted EBITDA soared 17.9% to US$ 921.13 million. Meanwhile, sales and marketing and R&D expenses increased on a y-o-y basis, reflecting investments in online gaming products, new product launches, and new content. Adjusted net earnings remained even with the prior year at US$ 533.23 million. The benefits from higher revenues and lower finance costs were offset by increase in other operating expenses.

Financial Highlights (Source: Company Reports)

Stock recommendation: The Stars Group is witnessing higher customer activity at its online poker and casino product offerings. The surge in online poker and casino product offerings helped the company to mitigate the losses from the absence of betting income in light of postponement of sporting events. The company further stated that it is witnessing sustained momentum in the second quarter as well with solid growth in average daily revenues in the first two weeks. Given the company’s stellar financial performance, TSGI stock has marked a steep recovery in the recent past and is trading in the green so far this year. Also, TSGI is likely to gain from the combination with Flutter, which it expects to close in the second quarter. While we are impressed with the company’s strong performance, we believe the positives are already embedded in TSGI stock. The COVID-19 outbreak is likely to affect the betting revenues in absence of any major sporting events. Further, we expect a decline in consumer spending to hurt the company if the pandemic continues for a prolonged period. Hence, we recommend a “Watch” stance on TSGI at its closing price of CAD 34.85 on April 21.

TSGI Daily Price Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.