One Large-Cap Metals & Mining stock to Hold – WPM

Wheaton Precious Metals Corp. (TSX: WPM) is one of the largest precious metals streaming companies across the globe and operates through projects like Vale's Salobo mine and silver streams on Glencore's Antamina mine and Goldcorp's Penasquito mine.

Key Updates:

• Strong momentum from silver segment: The company reported strong demand from its silver segment and posted its silver sales of 22,860 ounces, reflecting 18.9% y-o-y growth over FY20. Additionally, the realization price of silver stood at USD 25.08/ounce in FY21, up 20.7% on y-o-y basis. This resulted to higher silver revenue of USD 573.4 million in FY21, as compared to USD 399.6 million in FY20.
  

• Higher operating cash flows: In FY21, the company reported its operating cash flows of USD 845.1 million, which is 10.4% y-o-y higher than FY20. This might support the overall liquidity position and is a key positive for the company.

• Robust profitability margins: The company reported improved profitability margins as compared to the industry median, which indicates better operational efficiencies. Notably, in FY21, the company reported its EBITDA margin and operating margin of 71.1% and 62.8%, respectively, higher than the industry median of 39.2% and 19.4%, respectively. Moreover, the company reported its net margin of 62.8% in FY21, higher than the industry median of 13.1%.

• Dividend Update: On March 10, 2022, the company announced a quarterly cash dividend of USD 0.15 per share with a payment date of April 07, 2022.

Risks associated with the investment:

The performance of the company is highly correlated to the international metal prices, and volatility in the same would lead to lower realization prices and subsequently dampen the company’s performance.

FY21 Financial Highlights:

    FY21 Income Statement highlights (Source: Company Report)

• WPM announced its full-year result, wherein it reported sales of USD 1,201.6 million, grew from USD 1,096.2 million in FY20. The increase was primarily due to higher silver sales coupled with increase in realized prices of Silver. Meanwhile, this was partially offset by lower gold revenue.

• Gross margin stood at USD 658.9 million, slide from USD 585.5 million in previous year, supported by the elevated sales as mentioned above. This was partially offset by higher total cost of sales (USD 542.7 million v/s USD 510.6 million in FY20).

• The period was marked by lower general & administrative expenses and reported an income from reversal of impairment of mineral stream interests amounting USD 156.7 million. This was partially offset by an increase in other expenses.

• Net earnings stood at USD 754.8 million, surged from USD 507.8 million in FY20, due above-mentioned reasons coupled with significantly lower finance costs.
  

Valuation Methodology (Illustrative): Price to Cash Flow based

Analysis by Kalkine Group

Stock Recommendation

The company reported a significantly lower cash conversion period of 2.7 days in FY21, as compared to the industry median of 62.7 days. This indicates that the company takes lower time to convert its investments to cash flows. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Franco-Nevada Corp, Sandstorm Gold Ltd and Royal Gold Inc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of WPM at the last closing price of CAD 60.16 on March 25, 2022.

One-Year Technical Price Chart (as on March 25, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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