Newmont Corporation (TSX: NGT) is one of the leading gold miners with one of the largest gold reserves in the industry. The company also produces copper, silver, zinc and lead. It has its operating assets across the United States, Canada, Mexico, Dominican Republic, Peru, Suriname, Argentina, Chile, Australia, and Ghana. 

Why Should Investors Book Profit?

• Lower Profitability Margins: In FY21, the company reported its EBITDA margin and operating margin of 35.6% and 10.2%, respectively, as compared to industry median of 39% and 19.5%, respectively. This indicates that the company is struggling with rising input costs. Moreover, the company’s net margin stood significantly lower at 0.1% in FY21, as compared to the industry median of 13.7%.

• Lengthy Cash Conversion Period: In FY21, the company reported its cash conversion period of 70.3 days, which is higher than 47.6 days in FY20. Moreover, it is higher than the industry median of 63.7 days. A higher cash conversion period depicts that the company is taking more time to convert its investments to cash flows.

• Lower Cash flow: The company reported its cash from operating activities of USD 4,279 million in FY21, which is lower than USD 4,882 million in FY20. Moreover, the group reported its free cash flow of USD 2,613 million, which is significantly lower than USD 3,588 million in FY20. This might dampen the overall liquidity of the company.

  Valuation Methodology (Illustrative): EV to Sales Based

Analysis by Kalkine Group

Stock Recommendation:

Despite elevated gold prices, the company reported its net income from the continuing operations of USD 176 million, which is significantly lower than USD 2,628 million in FY20. This is primarily due to elevated input costs and lack of discipline cost structure. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a double-digit downside (in percentage terms). For the said purposes, we have considered peers like Barrick Gold Corp, Yamana Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Sell’ rating on the stock of NGT at the last closing price of CAD 104.57 on April 19, 2022.

One-Year Technical Price Chart (as on April 19, 2022). Source: REFINITIV, Analysis by Kalkine Group

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