Central Asia Metals#: H1 2021 Interim Results
Commodity Prices Drive Strong First Half
Central Asia Metals (LON:CAML) reported strong interim results as copper, lead and zinc prices extended their gains up 21%, 11% and 12% YTD. H1 2021 revenue of US$101m was up 42% YoY, EBITDA of US$64m was up 52% YoY and the EBITDA margin increased 5pp to 61%. With no significant other charges, net income was up 69% YoY to US$42m. Having marked to market our commodity price assumptions, our estimates are broadly unchanged meaning CAML remains well on track for a record year of earnings underpinned by ongoing high prices and stronger H2 metal production at Kounrad and Sasa following the reiteration of guidance.
Cash Flow Generation Sets Company for Next Phase
The company’s Free Cash Flow metric of US$48.9m in H1 2021, from which the dividend is calculated, was up 131% YoY leading to a 42% increase on last year’s interim dividend to 8p/sh. With such strong cashflow generation the company has also elected to retire an additional US$10m of debt this year, meaning the Traxys facility will be repaid earlier in 2022F.
We therefore forecast US$90m net cash by the end of 2022F. The company has highlighted progress in its business development activities and with such a strong balance sheet we see a great deal of flexibility for the company as it looks to execute its growth strategy. With the mining cycle at the start of an upswing, we expect the number of opportunities to increase.
Furthermore, CAML has also progressed the potential for renewable power at both assets with a deal agreed at Sasa and progress at Kounrad for solar use. This has the potential for both economic benefits as well as strengthening the company’s credentials as a sustainable producer of metals.
Recommendation and Target Price
The dividend and results prompted an initial strong positive reaction with the share price up 7% on the day, however, subsequent market volatility erased the gains and the stock is deeply undervalued trading on 3.9x EV/EBITDA, in our view, particularly with record earnings in sight.
We reiterate our Buy recommendation and target price of 325p which implies 41% upside and 47% total return.
Oliver O'Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: oodonnell@vsacapital.com
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