Barrick Gold Corporation

Gold Price to Support Profitability: Barrick Gold Corporation (TSX: ABX) is a Canada based gold mining company which has many exploration and development projects located across five continents.

Outlook: For FY20, the Company expect to produce 4.60 million ounces to 5.00 million ounces of gold at an estimated cash cost of US$ 650 to US$ 700.

Q1FY20 Financial Highlights: ABX reported an impressive set of numbers and posted a 30% y-o-y increase in its revenue of US$ 2,721 million, thanks to a 22% surge in price realization which came at US$ 1,589/oz, as compared to US$ 1,307/oz in pcp. Adjusted EBITDA soared to US$ 1,466 million, reflecting a 46% y-o-y growth over Q1FY19, thanks to lower general and administrative expenses and exploration, evaluation and project expenses, partly offset by a significant rise in cost of sales. Net income showed a robust growth at US$ 663 million, as compared to US$140 million in pcp, partially supported by lower interest expense, while higher income tax expense remained a drag. Barrick witnessed a 21% y-o-y surge in capital expenditures of US$ 451 million, while free cash flow grew US$ 438 million, as compared to US$ 146 million in Q1FY19.

During the quarter, Barrick sold 1,220,000 ounces of gold and 110 million pounds of copper, as compared to 1,365,000 ounces of gold and 103 million pounds of copper, respectively in the previous corresponding period.

Q1FY20 Income Statement Highlights (Source: Company Reports) 

Valuation Methodology:  Price/CF based Relative Valuation 

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The ABX stock has generated a handsome return of ~122% in the last one year, supported by appreciation in international gold prices. During the quarter, the ABX confirmed its signing of the framework agreement in Tanzania, which allows exporting of concentrate by the Company. The Company is well-positioned and has ample liquidity to cater its business requirements for the foreseeable future along with meeting its capital expenditures, working capital requirements, interest payments and dividends payments. We expect gold prices to remain elevated which is a positive for ABX. We have valued the stock using P/CF based relative valuation approach and taken peers like Agnico Eagle Mines Ltd (TSX: AEM), Newmont Corporation (TSX: NEM) etc. and arrived at a target price offering a single-digit upside potential (in % terms). Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 37.52 as on May 06, 2020.

ABX One-Year Daily Price Chart (Source: Thomson Reuters)

Crescent Point Energy Corp.

Crescent Point Energy Corp. (TSX: CPG) is a leading North American oil-producing company which specializes in the production of Crude oil and natural gas etc.

To weather the current macro challenges, CPG lowered its budgeted 2020 capital spending and is estimated within the range of CAD 650 million to CAD 700 million. The Company’s expects its average production within the range of 110,000 boe/day to 114,000 boe/day. Crescent reported adequate liquidity of more than CAD 2.5 billion of unutilized credit capacity at the end of Q1FY20.

CPG declared a quarterly cash dividend of CAD 0.0025 per share, payable on July 2, 2020

Q1FY20 Operational Highlight:  For the quarter ended March 31, 2020, CPG reported with a weak set of numbers, wherein, the Company posted oil and gas revenue of CAD 486.7 million, as compared to CAD 780.5 million in pcp. The decrease was primarily attributable to lower production of 141,330 boe/day, down from 175,955 boe/day in Q1FY19. The income was further impacted by a significant fall in the selling price of Crude oil and NGLs. Net loss widened to CAD 2,929.3 million, as compared to CAD 5 million in pcp, due to surge in Depletion, depreciation, amortization and impairment costs, while Operating costs, transportation and general and administrative stood lower than the previous corresponding quarter. Capital expenditure stood CAD 320.1 million during Q1FY20.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Stock Recommendation: The CPG stock corrected big-time by ~64% in one year due to the declining crude oil price in the international market. On account of the COVID 19 crisis, the global market saw an unprecedented fall in crude oil demand, resulting in higher inventory and production cut for the oil- producing companies. CPG was no exception and witnessed a major setback in its quarterly performance. To weather the current situation, the Company has improved its cost structure and lowered its operating expenses by reducing compensation for Executives and the Board of Directors.  The stock is available at price/cash flow of 0.8x on TTM basis, as compared to the industry (Energy) average of 1.0x. On an EV/EBITDA front, the stock is trading at 3.1x on TTM basis, as compared to the industry (Energy) median 3.6x. We expect a steady revival of the crude oil prices on the back of economic growth and improved demand scenario. Hence, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 1.81 as on May 06, 2020.

CPG One-Year Daily Price Chart (Source: Thomson Reuters)

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