Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
P/B ratio provides a valuable reality check for investors seeking growth at a reasonable price. If a company's ROE is growing, its P/B ratio should also be growing. The P/B ratio has been used by value investors for decades and is widely used by market analysts. Any value under 1.0 is considered a good P/B for value investors, indicating a potentially undervalued stock. Value investors often consider stocks with a P/B value under 3.0 as their benchmark. Takeaway: Kenmare's share price is too low. Also relevant if ever a takeover approach?
In fact, Simply Wall Street have Kenmare fair value at £8.73, which seems pretty realistic to me. And the recent rise in commodity prices could have increased this figure still further. It is also interesting to note that Kenmare's PB ratio is only 0.7, against a sector average of 2.1.
I read a couple of months back that the Mozambique ilmenite spot price in China had passed $2.50. Does anyone have a more recent price? It would be interesting to know given that copper, a close correlate, achieved all time highs in recent days.
Don't worry, after the H1 results in August, the share price will surely shoot higher than 500p. All the fundamentals are in place for the best ever results.
Historically, there has been a very high correlation between the price of copper and mineral sands, particularly ilmenite. Copper has now increased to prices not seen since 2011, and it has nearly doubled in the last year. If the ilmenite price follows suit, we could see a spot price exceeding $300 by the year end. Calculate what effect this would have on Kenmare's profit :)
Today's update is very positive, and supports my view that the share price will be above 500p by September, and above 600p by the end of 2021. All the key fundamentals are in place to achieve these price targets.
The nature of the industry is that most miners use EBITDA to assess performance. On forecast EBITDA for 2022 and 2023, the share price should be double what it is now. A ten-year analysis is pretty useless in this industry because nobody can acurately predict how long the current increases in commodity prices will last, or the medium term growth in global GDP. Also, it is worth remembering that while current market cap is £463m, it has been over £1bn in the past, and that was when there was no profit !!!
Kenmare's current market cap is £463m. Likely, in 2022, it will increase to more than £600m; then, if Kenmare enters the FTSE350, it will really get the attention of fund managers and retail invetsors.
The current debt could be paid off from one year's free cash flow should the BOD choose, but they seem to think it is more efficient to carry some debt on the balance sheet. My view is that if the company turned to a net cash position, then in the next industry downturn, it could be a takeover suitor rather than takeover target. Just over a year ago we were promised three years of minimal capex. The BOD have already done a U-turn in 2021; let's hope they avoid capex in 2022 and 2023. That would make the dream more likely to materialise.
Interestingly, two years ago, Hannam & Partners were forecasting EBITDA of $211m (approximately £150m) for 2021. Wonder what the actual figure will come in at.
Mineral sands prices have always been strongly correlated with global GDP and this is expected to increase greatly in 2021 and 2022, supported by government stimulus measures worldwide. Hence, demand for ilmenite and other mineral sands should continue growing in the remainder of 2021 and 2022. There will be little significant new supply of ilmenite in the next two years, which all bodes well for Kenmare. Given the increased demand, ilmenite prices will probably keep increasing until the new supply emerges. Kenmare's EBITDA could easily exceed $150m in 2022.
I would be surprised if the share price has not passed £5 shortly after the H1 results in August. Berenberg has also increased its price target from 460p to 510p.
Over 60% of Mozambique's population is Christian, whereas less than 20% are Muslim, located mainly in the north of the country. There have been disputes and violence in the North for over one decade. This is a regional dispute, 7 hours away from Kenmare's location. Some posters are probably spreading fear, trying to buy more stock at cheaper prices. Mozambique is no more high risk than most other African countries. See https://www.polgeonow.com/2020/08/northern-mozambique-isis-crisis-control-map-2020.html
If the H1 figures support the consensus estimates compiled by FactSet that adjusted earnings per share will leap to 87¢ in 2021, from 15¢ last year, then what share price would we expect by the end of August? £5? £6? more?
Over 15 years, Kenmare has invested on the coast of Mozambique to bring a long-term ilmenite sand project onstream. With the investment phase now largely complete, the company is moving into a position where it will generate a cash payback that is abnormally large compared with its market capitalisation.
Consensus estimates compiled by FactSet see adjusted earnings per share leaping to 87¢ in 2021, from 15¢ last year.
A $200m operating cash flow is a realistic positive target for FY2021 based on extrapolation of last year's ilmenite price increase and the turnaround in the zircon price. If the actual figure is anywhere near $200m, I think we could expect to see the share price double what it is now - most likely in the region £7 - £8.
If Kenmare achieves the top end of production guidance at 1.2m tonnes; achieves an average selling price of $300/tonne; and meets the bottom of the range cost of $132/tonne, then the company would achieve over $200m of operating cash flow. This is pretty impressive and a long way north of any current forecasts. --- What is the probablility that Kenmare can achieve all three of these targets? They don't seem too demanding to me, but please dyor.
Thanks Caposoka, I understand perfectly that the "big" promised returns will be paid in 2022 based on 2021's profit, but I thought that's what BigEarl's "slightly above" statement was referring to. H1 div. was already reduced on the previous year so we are not expecting miracles tomorrow for FY20.