Gold Player That Has Beaten Guidance Over Many Years! Strong Tailwinds An Icing on the Cake

July 31, 2020 08:02 PM AEST | By Team Kalkine Media
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Gold is talk of the town, with prices crossing multi-year high and now trading in uncharted waters. With USD on weak footing, thanks to unabated money printing by the U.S FED, the shine on gold is further buffed. Gold ETFs are seeing good traction; amidst all this, the gold stocks are going from strength to strength.

However, while many gold stocks on the exchange are under sentiment splash gold player, Saracen Mineral Holdings Limited (ASX:SAR) has emerged as the top-performing blue-chip stock with an impeccable total return of 87.01 per cent on a YTD basis.

Moreover, with the total return of 87.01 per cent, SAR has relatively outperformed a majority of peers and the overall segment, even gold and silver, that have been on a tear so far.

Astonishing Revenue and Profitability Track Record

SAR reported revenue of $555.59 million in FY2019, up by ~ 8.73 per cent against the previous financial year. The higher revenue for FY2019 further transcended into higher profitability with the Company reporting a ~ 40.0 per cent increase in Net Profit After Tax (or NPAT) for FY2019, operating leverage at play.

Post a strong FY2019, the Company now seems well poised to witness another bumper financial year of strong performance amid record production on the back of solid performance in the past quarters and the icing on the cake, high gold prices helping the company post high average realised price on sales.

The Company reported an unaudited sales revenue of $1,072 million for FY2020, ~ 93.15 per cent higher against the previous financial year.

The nearly two-fold increase in the FY2020 revenue was primarily supported by higher quarter-on-quarter average realised price along with a record gold production and high sales during the March 2020 quarter.

Furthermore, the FY2020 estimated revenue of $1,072 million set a new record for the Company, leading to a gush in the share price of the Company.

Profitability Conversion and Cost Analysis

Basic Information from Refinitiv databaseUpon analysing the cost structure over the past five years it could be noted that the cost of goods sold represents ~ 60 per cent of the total revenue. Post taking the mean and median approach of forecasting, the cost of goods sold could come up to ~ $570.30 million (mean approach) or ~ 696.8 million (median approach) for FY2020.

Basic Information

On considering the above chart, it could be seen that the Company had demonstrated strong growth in profitability, and the current estimates by the Company also point out that FY2020 could witness another financial year of strong profit.

Beats Guidance and How!

The company has had a track record of comfortably beating its guidance in the past many years, and the same continues with the overall FY2020 production of 520,414 ounces surpassing the company’s guidance of 500,000 ounces.

Furthermore, the Company has managed to reduce the production cost with the all-in sustaining cost declining year-on-year; however, there was a slight increase in AISC in FY2020, which the Company believes is primarily due to the high exploration activities conducted during the financial year.

Moreover, SAR has realised a high selling price with a considerable y-o-y surge in gold prices.

Post witnessing another financial year of strong and record production of 520,414 ounces, SAR now anticipates further growth in the production, prompting the Company to take its FY2021 production guidance to more than 600,000 ounces, a 15% jump.

Growth and Profitability

The overall macro environment has been favourable for gold and gold related players. In the world of return-hungry investors and record high prices of gold, prudence is called for.

The stock of the Company last traded at $6.000 (as on 31 July 2020), down by 1.3 per cent against its previous close on ASX.


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