Source: Investing Posted 08/08/2024, 12:06
Canaccord Genuity on Thursday began its coverage of Fresnillo Plc (FRES:LN) (LSE: FNLPF), a precious metals mining company, with a buy rating and target price of 680 pence (£6.80)..
The company’s analysis predicts a significant increase in Fresnillo’s profits, extending until at least 2026, due to the strong outlook for precious metals prices.
The company expects Fresnillo to generate additional revenue of $500 million to $700 million annually over the next three years, compared to the $2.7 billion reported for 2023. This increase in revenue is expected to translate into a significant increase in operating cash flow, which could lead to a period of positive free cash flow for the company.
Canaccord Genuity forecasts also indicate significant inflation in average unit cost of 34% in all Fresnillo group mines, except Juaniquibio, from 2022 to 2024. When Cienega is also excluded, inflation expectations drop to 23 %.
Despite these inflationary pressures, the company notes that cost containment measures have been implemented across the Group’s assets as of the end of 2023. These measures are expected to mitigate further erosion of inflationary earnings by the second half of 2024.
The Canaccord Genuity analyst expressed optimism about the company’s financial outlook, saying: “With the updated commodity price range for the third quarter of 2024 offering a stronger outlook for precious metals prices for the next three years, we expect Fresnillo to achieve a significant rebound in profits until at least 2026.” The company stresses the importance of containing costs in the coming years and expresses the hope that the measures already taken will help contain Further erosion of profits.
With a potential rise of 25% to target price, the start of Canaccord Genuity’s coverage of Fresnillo with a buy rating reflects a positive outlook on the company’s stock performance in the near future.
In other recent news, Fresnillo PLC, the world’s largest silver producer, announced strong interim results during the recent earnings call. The company announced increased earnings and maintained a strong balance sheet, despite operational challenges at the Fresnillo mine and weather-related setbacks at Herradura. The company’s financial strength is underpinned by strong industrial demand for silver and gold’s position as a safe-haven asset.
Fresnillo PLC reaffirmed its commitment to safety, environmental sustainability and community relations while moving forward with various mining projects and exploration efforts. The company is still on track to meet its annual silver and gold production guidelines.
Furthermore, Fresnillo PLC is optimistic about the future of open-pit mining in Mexico, despite potential legislative challenges. It also explores M&A opportunities to replace depleted resources and add growth.
The company has set a target to increase the use of renewable energy to 75% by 2030, with administrative processes being the main obstacle to reaching 100%. These are some of the recent developments of Fresnillo PLC.
While Canaccord Genuity started covering Fresnillo Plc with a promising outlook, real-time data from InvestingPro enriches the narrative for potential investors. Fresnillo has a market capitalization of 4.94 $1 billion, currently trading at a P/E ratio of 20, which drops slightly to 19.23 when looking at the past twelve months as of the second quarter of 2024. This valuation comes in the context of strong revenue growth of 13.22% over the same period, confirming the company’s expansion into a challenging economic environment.
InvestingPro Tips highlights that Fresnillo stock has seen a significant decline over the past week with a gross price return of -9.15%, yet the company has managed to maintain dividends for 17 consecutive years, demonstrating its commitment to shareholder returns. In addition, Fresnillo operates with a moderate level of debt and liquid assets exceeding their short-term liabilities, indicating a strong financial position to counter short-term market volatility.
