Sierra Metals Inc

Sierra Metals Inc (TSX: SMT) is a precious and base metals producer in Latin America. The company acquires, explores, extracts, and produces mineral concentrates consisting of silver, copper, lead, zinc and gold in Mexico and Peru.

Key Updates:

• Insiders Buying: Recently the independent Chairman of the Board of Sierra Metals Inc, Jose Vizquerra Benavides has bought shares of the SMA. Shares which independent chairman bought was the biggest purchase of Sierra Metals shares made by an insider individual in the last twelve months, according to the records. That means that even when the share price was higher than CA$1.67 (the recent price), an insider wanted to purchase shares, as it's more likely insiders are bullish about the company.

• Undervalued against Peers: SMT shares are trading at a steep discount to its peers. The TTM P/E multiple of the company stood at 18.16x, whereas average peer’s TTM P/E multiple stood at 27.97x, implies a discounted valuation of 35%. It looks that the recent poor performance of the company in Q3FY21 has already priced-in, and an expected decent performance of the company in the upcoming quarters on the back of firm underlying commodity prices will help SMT shares in PE expansion.

Source: REFINITIV, Analysis by Kalkine Group 

• Firm underlying commodity prices: Prices of silver, zinc, copper, and gold are firm and strong, this is going to bolster the group’s performance in the upcoming quarter.
  

Q3FY21 Financial Highlights:

Source: Company filing

• During the Q3FY21, company’s reported revenue stood at USD 60.7 million decreased by 17% from USD 73.2 million in Q3FY20, largely due to the lower grades at the Yauricocha and Bolivar mines combined with operational challenges at the Cusi mine.
• In Q3FY21 reported adjusted EBITDA of USD 17.4 million decreased by 53% compared to USD 37.2 million in Q3FY20 due to the decrease in revenues realized.
• In Q3FY21, operating cash flows before movements in working capital of USD 16.5 million in Q3FY21 decreased from USD 37.9 million in Q3FY20.
• Cash and cash equivalents as of September 30, 2021, stood at USD 58.3 million vs. USD 63.84 million as of September 30, 2020.

Risks: The company is exposed to a variety of risks ranging from adverse move in the commodity prices, resurgence in the COVID-19 cases could impact production and supply chain of the company, and other macro-economic risks. 

Valuation Methodology (illustrative): Price-to-Cash Flow per share base valuation

Stock Recommendation:

Recent insiders buying in the stock indicated that the insiders are bullish on the long-term growth prospects of the company. Also, stronger underlying commodity prices will improved overall financial health of the company in the upcoming quarters. Further, the company has strong debt protection metrices and consistently lowering its balance sheet risk by reducing the overall debt contribution. Hence, we recommend a ‘Speculative Buy’ rating on the stock of SMT at the last traded price of CAD 1.66 on December 20, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

1-Year Technical Price Chart (as on December 20, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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.