Nomad Royalty Company Ltd. (TSX: NSR) is a Canada-based gold and silver stream royalty company. The Company is engaged in purchasing rights of the gold and silver mine and generates revenues from Gold Streams, Silver Streams, Royalties, and Gold Prepay loans. 

Key highlights

• FY21 highlights and Dividend declaration: On February 22, the company announced its preliminary results for Q4FY21 and FY21, stating the Gold Equivalent Ounces (GEO) for FY21 sold was 16,372 ounces as compared to 14,870 ounces in FY20. This contributed an increase in revenues to USD 27.2 million in FY21 vs USD 26.8 million in pcp. On February 22, 2022, the company announced its first quarterly dividend for FY22 of CAD 0.05 per common share which will be paid on April 14, 2022.

• Fundraising: On January 20, 2022, the company concluded its previously announced public offering of CAD 42.5 million of gross proceeds, giving a boost to its books for further acquisitions and growth opportunities.

• Annual Guidance FY2022: For FY22, the company gave a strong outlook for its FY22 royalty and stream revenues of 23,000 to 27,000 GEO, estimating the gold prices of USD 1,800 per ounce of gold.

• Strong liquidity and acquisitions:For FY21, the company made several purchase agreements and acquisitions, which helped it to increase its next three years GEO (2022-2025) to 130% of its portfolio as compared to the 8% at the company’s creations in May 2020. To execute its strategic expansionary plans the company raised its credit facility to USD 125 from USD 75 million in FY21.
  

Risks associated with investment

The company is extensively involved in royalty income from precious metals especially Gold, which contributes 93% of its revenue in FY21. This revenue stream is dependent on the gold demand and price volatility, which could sway the revenues and bottom line of the company to a great extent. 

Financial overview of Q4FY 2021 (Expressed in thousands USD)

Source: Company Filing 

• The company reported its total revenues for Q4FY21 at USD 6.78 million, which was similar to the total revenue of USD 6.78 million in pcp. There was a decline in gold and silver sales to USD 4.47 million in Q4FY21 as compared to USD 6.18 million in pcp.

• The total cost of sales for Q4FY21 was USD 4.08 million vs USD 5.06 million in pcp. For the reported period, the group witnessed a dip in its gold and silver acquisition cost to USD 0.63 million as compared to USD 2.63 million in pcp, which kept the total cost of sales lower.

• For Q4FY21 the total other income turned negative to USD 2.15 million vs the total other income of USD 5.99 million in pcp. There was a one-time charge of the fair value of conversion option of USD 1.14 million in Q4FY21 which dragged the other income to negative.

• For Q4FY21 the company reported a Net loss to its shareholders of USD 2.39 million as compared to the Net income of USD 11.26 million in pcp.  
  

Valuation Methodology (Illustrative): Price to Cash Flow multiples Based

Analysis by Kalkine Group 

Stock recommendation 

The company delivered a positive return of 6.28% in past one month and 5.26% returns in the past three months. With the surge in gold prices, along with the rise in its demand because of the inflation-protected asset class, the company has improved its revenues in FY21 to USD 27.2 million. Further, it maintained the cash balances of USD 12.4 million with a dividend yield of 2.1% which is higher in the precious metals royalty sector.  The enhanced credit facility and the recent fundraising will help the company to get into more gold revenue streaming options that involve gold purchase agreements and acquisitions primarily. On the valuation front, the stock is measured on the NTM Price to Cash flows multiple based, which hints the stock is still undervalued as compared to its peers, leaving the scope for the stock to match the industry valuations. We have considered Sandstorm Gold Ltd., Maverix Metals Inc. as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing market price of CAD 8.79 on March 4, 2022. Additionally, the 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.

One-Year Technical Price Chart (as on March 4, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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