One Small Cap Basic Material Stock to Hold- NSR

Nomad Royalty Company Ltd. (TSX: NSR) is a royalty mining company, that mines silver, gold, and other base metals. The portfolio includes Woodlawn property, Blyvoor property, Gualcamayo property, Suruca property, and other properties.

Key Updates:

• Increase in dividend payment: In FY21, the group paid a higher dividend of USD 8.9 million, as compared to USD 1.9 million in FY20, backed by stable cash flows. This is impressive as most of the companies are lowering their dividend distribution in order to retain their liquidity. The company also announced a quarterly dividend of CAD 0.05 per common share, payable on April 14, 2022.

• Bullish long-term guidance: The company expects its attributable royalty and stream sales to reach 60,000 Gold equivalent ounce (GEOs) by 2025 based on expected commodity prices of USD 1,800 /ounce for gold, USD 24.00/ounce for silver and USD 4.00/pound of copper. The management also expects the start of operations at the Greenstone and Platreef mines in 2024 and Cortez complex's Robertson deposit in 2025.

• Acquisition update: In January 2022, the company completed the acquisition of a portfolio of five royalties covering a number of Canadian exploration projects located in Ontario and Québec, Canada. This is expected to support the company’s upcoming gold equivalent ounce (GEO’s) and is a key positive. This purchase consideration was USD 0.7 million and was funded by issuing 96,818 common shares of the Company.
  

Risk associated with the business:

The performance of the company is directly correlated with international gold and other metal prices. Thus, volatility in the commodity price would dampen the company’s income and would take a toll on the overall performance. 

    FY21 Financial Highlights:

              FY21 Income Statement Highlights (Source: Company Report)

• NSR announced its full year result, wherein the company posted its revenue of USD 27.1 million, improved from USD 26.7 million in FY20. During the period the company reported higher gold sales of 16,372 gold equivalent ounces, as compared to 14,870 gold equivalent ounces in FY20.

• The company reported a significantly lower cost of sales of USD 18.2 million in FY21, as compared to USD 22.2 million in FY20, due to a drastic slide in purchased cost of gold and silver expense. Hence, gross profit surged to USD 8.9 million in FY21 from USD 4.5 million in FY20.

• The company reported total operating expenses of USD 8.8 million in FY21, as compared to USD 23.4 million in FY20, primarily due to an inclusion of listing expense in the previous year. However, this was partially offset by higher general and administrative expenses. Operating income stood at USD 0.084 million versus a loss of USD 18.9 million in FY20.

• The company encountered higher finance costs and reported an other loss amounting USD 0.3 million during the period. The group also posted an income tax expense of USD 0.2 million v/s an income tax recovery of USD 41.5 million in FY20. This resulted to a net loss of USD 1.4 million, as compared to USD 20.1 million in FY20.
  

Valuation Methodology (Illustrative): Price to CF

Analysis by Kalkine Group

Stock Recommendation:

For 2022, Nomad expects attributable royalty and stream sales to total 23,000 to 27,000 Gold equivalent ounces and expects commodity price in between of USD 1,800 per ounce for gold, USD 24.00 per ounce for silver and USD 4.00 per pound of copper. We have valued the stock using the Price to CF based relative valuation method and arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Maverix Metals Inc, Wheaton Precious Metals Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of NSR at the last closing price of CAD 9.44 on March 23, 2022.

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

Disclaimer

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