Endeavour Mining plc (TSX: EDV) is a United Kingdom-based gold producer company with its operating assets across Senegal, Cote d'Ivoire, and Burkina Faso. To add more, its projects and explorations assets are spread across the Birimian Greenstone Belt across West Africa.

Key highlights

• Ruckus in Burkina Faso: On January 24, 2022, the company announced that its supply chains and operations are not impacted by the ongoing political chaos going on in the Burkina Faso region. The uninterrupted operations across its mines in Burkina Faso, which is one of the key areas of operations, will help the company to sustain its production in near term.

• Strong Annual production: On January 24, 2022, the company released its production numbers for Q4FY21 which stood at 398koz (koz= thousand ounces), an increase of 4% as compared to the previous quarter whereas the All-In sustaining cost stood (AISC) was stable at USD 900/oz. Further, the company outstripped its annual guidance for FY21 of 1,365 – 1,495koz with the actual figures of 1,536 koz and the AISC of USD  880/oz, within the guidance range of  USD 850-900/ oz. The upbeat in the production capacity is a tailwind for the company to clock its revenues and financials at sustained levels.  
  

• Dividend declaration & Debt Reduction: In FY 2021, the company declared a total dividend of USD 140 million, again it surpassed the initial committed amount of USD 125 million, thereby boosting the confidence of regular income-seeking investors. The Net Cash and cash equivalents for the Q4FY21 stood at USD 906 million as compared to the USD 645 million in pcp.

• Industry beating margins: The Company’s performance is strongly reflected across the various profitability ratios for the Q3FY21. The company reported its EBITDA margin of 58.6% in Q3FY21 vs the industry median of 38.7% and the Operating margin was clocked at 30.5% for a similar period as compared to the industry median of 27.0%. In the bottom line, the company’s Net margin was highlighted at 19.2%  vs the industry median of 12.9%. The chart below gives a glimpse of this.

Source: REFINITIV, Analysis by Kalkine Group 

Risks associated with investment

The company is primarily dealing with yellow metal, Gold and its operations are spread across the various regions of the African continent. The volatility in the gold prices along with the demand and operations curbs related to supply chain disruption possess a few of the key threats to the operations and financials of the company. Having said that, the company is also exposed to foreign exchange-related risks since its operations are majorly cross-border.

Financial overview of Q3FY21 (expressed in USD millions)

Source: Company Filing 

• Increase in revenues: In Q3FY21, the company witnessed an increase in revenues to USD 692 million as compared to USD 435 million in the pcp. The rise was primarily because of the higher sales of gold at a higher realized gold price in Q3FY21.
  

• Higher Earnings from Mining operations:  For Q3FY1 the Earnings from mining operations increased to USD 235 million vs USD 123 million in pcp. This rise is attributable on account of major upbeat in the revenues, which were partially offset by the rise in Operating expenses of USD 257 million in Q3FY21 as compared to USD 166 million in pcp.

• Improved Earning before taxes: for Q3FY21 the company reported a rise in its Earning before taxes of USD 173 million as compared to usd 75 million in pcp.

Valuation Methodology (Illustrative): EV to Sales

Analysis by Kalkine Group

Stock recommendation

The company delivered a strong positive return of 15.76% in past one month and 9.72% in the past six months, especially during the turbulent market conditions and range-bound gold prices in previous months. The company did overachieve its guidance in terms of production of gold and dividend distribution along with the debt reduction which happened in the past few months. Despite the recent marginal decline in the Q3FY21 revenues by 8.1% to USD 692 million, and a further 10% decline in Earnings per share from continuing operations of USD 0.45, still manages the company to beat the industry median in terms of various profitability metrics. The stock is still giving much headroom to catch up with its peers in terms of the valuations based on EV/ Sales.

Therefore, based on the above rationale and valuation, we recommend a "Hold" rating at the closing price of CAD 32.40 as on February 23, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing. We have considered  SSR Mining Inc., Silvercorp Metals Inc.,  Equinox Gold Corp to name a few as the peer group for the comparison.

One-Year Technical Price Chart (as on February 23, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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