All You Need To Know About This Mining and Minerals Stock: Fresnillo PLC (FRES)

  • Mar 04, 2019 GMT
  • Team Kalkine
All You Need To Know About This Mining and Minerals Stock: Fresnillo PLC (FRES)

Business Overview

Fresnillo Plc (FRES) is a leading mining and minerals company and is known for producing non-ferrous minerals. It is listed on the London Stock Exchange. The company’s business operations are categorised into four production segments: gold, silver, zinc and lead; and it is also engaged in six operating mines: Saucito, Fresnillo, Cienega, Soledad-Dipolos mine, Herradura, and Noche Buena. Fresnillo has two development projects: Saucito II and San Julian. From the last 500 years, the company is engaged in the Metal business. The Company is based out in Mexico.

Key Management

  • Chairman: Alberto Baillères
  • Chief Executive Officer: Octavio Alvídrez
  • Chief Financial Officer: Mario Arreguín

Financial Highlights FY2018, ($, million)

(Source: Annual Report, Company Website)

Financial Commentary – FY2018

  • Silver production was 5.3% higher in FY18 on account of a strong performance in all subsidiary business. Gold production was 1.3% higher than FY17, primarily on account of a good performance at Saucito.
  • Fresnillo reported revenue of $2,103.8 million for the financial year ended on 31st December 2018, 0.5 per cent above its FY17 revenue, due to record zinc, silver, and lead volumes sold, offset by lower prices.
  • Gross profit of $780.7 million stood 15.6 per cent lower in FY18 against its FY17 gross profit, due to higher production costs, increase in depreciation, and lower prices.
  • In FY18, Profit before income tax stood at $483.9 mn was $257.6 mn lower against its FY17 pre-tax profit of $741.5 mn.
  • Profit for the year stood at $350 mn in FY18, down by 37.6 per cent against FY17 Profit, due to a decline in the earnings from continuing operations and loss in Silverstream valuation.
  • However, EPS (basic) grew by 36.7 per cent during H1 FY18 against the EPS of H1 FY17.
  • The company’s reported Basic and Diluted Earnings per share for FY2018 was $0.475 which was 37.6 per cent less than FY2017 reported EPS of $0.653.

Overall, it was a mixed scenario. However, the group is expected to keep up the performance while managing costs in the long run.

Ratios

(Source: TR)

Ratios Commentary

  • Fresnillo gross profit margin for H1 FY18 stood lower against the industrial median. Gross margin of Fresnillo stood at 45.0 per cent against 52.0 per cent of the industry average during H1 FY18.
  • At EBITDA margin front, the company’s margin of 50.6 per cent stood higher than the industry median of 40 per cent.
  • Return on equity (ROE) reported 7.6 per cent for H1 FY18 was higher as compared to the industry median. Return on equity declined by 1 per cent in H1 FY18 from last six months.
  • At liquidity front, Fresnillo liquidity position is much higher than the industry median of 1.82, in terms of current ratios. Fresnillo current ratio was 10.24 during H1 FY18.
  • The company’s debt-equity ratio is fairly consistent from last one year at around 0.26x in H1 FY18. The company is highly leveraged when compared with the industry median.

Share Price Performance

On 1st March 2019, Fresnillo shares closed at GBp 824.0, down by 4.19% against its previous day close. During the last one-year stock has reached a 52w high of GBp 1,364.50 and a 52w low of GBp 737.60 At the closing price, the share price was 39.61% lower than its 52w High and 11.71% higher than its 52w low. Stock’s average 5 days volume was 62.95% higher against its 30 days average volume. The company’s outstanding market capitalisation was around £6.07 billion and a dividend yield of 2.54%. The company’s stock beta was 1.78 which indicates that stock is relatively highly volatile against its benchmark. From last 1 year, the stock was down by 30.73%, and on 3 months basis, the stock was up by 9.37%.

Growth Prospects and Risk Assessments

  • The company’s Silver production is expected in the range of 58-61 moz, that also includes Silverstream.
  • Gold production level is expected in the range of 910 koz to 930 koz.
  • Capital expenditure is forecasted to be around $710 million.
  • Commodities prices’ risks prevail (mainly, Gold and Silver).
  • Forex risks prevail (primarily US Dollar and GBP).
  • Brexit Uncertainties also hover over the future performance.

Conclusion

Fresnillo Plc has a strong business model, and this with strong liquidity position makes it attractive among the minerals and mining sector. Improvement in the global commodities prices will have a positive impact on the top-line and bottom line of the company. The market should keep a watch on the Fresnillo share going ahead.

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