Centerra Gold Inc (TSX: CG) a gold mining and exploration company engaged in the operation of gold properties in Asia, North America, and other markets worldwide. The company manages its reportable operating segments by a combination of geographic location and products. 

Why Should Investors Book Profit? 

• Restrained financials: In Q3 2021, the company showcased week financial numbers where its revenue declined 12% to USD 220.5 million against USD 251.2 million in pcp, mainly due to decrease in ounces of gold sold and lower average realized gold, copper and molybdenum prices. Furthermore, the cost of sales increased due to which its earnings from operations and net earnings from operations also declined significantly.

Source: Company Filings

• Lower margin profile v/s Industry: In Q3 2021, the company failed on maintaining its pace and witnessed lower performance under operating margin matrix, consisting of gross margin, operating margin, and net margin, which exhibits the extreme pressure on the company.

Source: REFINITIV, Analysis by Kalkine Group

• Higher Cash Cycle days: The company is holding higher Cash Cycle (Days) compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 152.6 days compared to an industry median of 54.4 days.

• Stretched valuations: CG shares are available at an NTM Price/Cash Flow multiple of 5.6x compared to the industry (Metal & Mining) median of 2.5x, while on NTM P/E multiple, it is trading at 7.8x compared to the industry median of 3.1x. This implies that the shares are overvalued against the industry. Higher valuations against an industry with fading financials draws a caution line.

• Exhausted technical indicators: The stock is continuously trading in a tight horizontal channel and recently it closed below its long-term resistance line which it failed again to breach, reflecting lack of strength in the stock and it may continue its bearish trend.

Valuation Methodology (Illustrative): Price to Cash Flow based

Analysis by Kalkine Group 

Stock recommendation

In the last quarter the company showcased pale financial numbers, witnessing degrowth in topline and bottom line. It also recorded lower margin profile against an industry, which exhibits the extreme pressure on the company. Additionally, its cash cycle days are higher, indicating a negative liquidity profile. Furthermore, on an NTM basis, the stock is trading at a premium to the industry on many parameters. Higher valuations versus an industry cast a shadow of doubt on investors' minds. In addition, technical indicators suggest that the stock price may consolidate or may make a correction from here. Hence, considering the aforesaid rationales and valuation done, we have given a “Sell” recommendation in the stock at the closing price of CAD 10.36 on January 18, 2022.

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

Disclaimer

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