Should Investors Book Profit on this Metal & Mining stock-  YRI

Yamana Gold Inc. (TSX: YRI) is a Canadian-based precious metals company which is engaged in the production of precious metals such as gold and silver. The group operates through the development stage properties, exploration properties, and land positions across Canada, Brazil, Chile and Argentina. 

Key Updates:

• Lower margins on y-o-y basis: The company reported its EBITDA margin and operating margin of 53.9% and 24.2%, respectively, in FY21, which is lower than 56.9% and 37.5% in FY20. This indicates that the company is struggling with its input costs and remains a key concern. Moreover, the company reported its net margin of 4.9% in FY21, as compared to 13% in FY20.

• Trading at a Stretched Valuations: On an NTM basis, the stock of YRI is trading at a significantly higher valuation which indicates a possible profit booking in the near term which might further leads to a price correction. Notably, the stock of YRI is available at an EV to Sales multiples of 2.8x on NTM basis versus the industry (Metals & Mining) median of 2.1x. Moreover, on a price to earnings basis, the stock is trading at a rich valuation of 20.4x on NTM basis, as compared to the industry median of 3.4x.

              Source: REFINITIV, Analysis by Kalkine Group

• Decline in profitability: Despite a higher revenue of USD 1,815.4 million in FY21 versus USD 1,561.0 million in FY20, the company posted a lower mine operating earnings of USD 635.1 million in FY21, compared to USD 702.4 million in FY20. This is primarily due to rising input costs, which acted as a drag. Net earnings also slide to USD 147.5 million in FY21, as compared to USD 203.6 million in FY20.

 Valuation Methodology (Illustrative): Price to CF based

Analysis by Kalkine Group

Stock Recommendation:

In FY21, the company reported its current ratio of 1.87x, which is considerably lower than the industry median of 2.5x. This indicates that the company is struggling to manage working capital and remains a major concern for the group. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like First Majestic Silver Corp, Endeavour Mining PLC etc. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of YRI at the last closing price of CAD 6.89 on March 28, 2022.

One-Year Technical Price Chart (as on March 28, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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