Wheaton Precious Metals — Honing Q322 forecasts

Wheaton Precious Metals (CN: WPM)

Currency in CAD

Last close As at 26/01/2023

CAD62.21

1.08 (1.77%)

Market capitalisation

CAD27,628m

Wheaton Precious Metals — Honing Q322 forecasts

Wheaton’s Q322 results are scheduled for 3 November after the market closes in Toronto. Ahead of their release, we have updated our forecasts to reflect recent moves in precious metals prices, forex, Wheaton’s share price and Vale’s Q322 production report (released on 17 October), which gives an indication of possible gold production at Salobo.

Lord Ashbourne

Written by

Lord Ashbourne

Director, Energy & Resources

Wheaton Precious Metals

Honing Q322 forecasts

Q322 results preview

Metals and mining

24 October 2022

Price

C$44.60

Market cap

C$20,146m

C$1.3755/US$, US$1.1286/£

Net cash (US$m) at end-June excluding US$2.7m in lease liabilities

448.6

Shares in issue

451.7m

Free float

100%

Code

WPM

Primary exchange

TSX

Secondary exchanges

LSE, NYSE

Share price performance

%

1m

3m

12m

Abs

4.7

5.9

(12.9)

Rel (local)

6.5

7.1

(2.0)

52-week high/low

C$64.70

C$39.11

Business description

Wheaton Precious Metals (WPM) is the world’s pre-eminent ostensibly precious metals streaming company, with over 30 high-quality precious metals streams and early deposit agreements over mines in Mexico, Canada, Brazil, Chile, the US, Argentina, Peru, Sweden, Greece, Portugal and Colombia.

Next events

Q322 results

3 November 2022

Q422/FY22 results

March 2023

Q123 results

May 2023

Analyst

Lord Ashbourne

+44 (0)20 3077 5724

Wheaton Precious Metals is a research client of Edison Investment Research Limited

Wheaton’s Q322 results are scheduled for 3 November after the market closes in Toronto. Ahead of their release, we have updated our forecasts to reflect recent moves in precious metals prices, forex, Wheaton’s share price and Vale’s Q322 production report (released on 17 October), which gives an indication of possible gold production at Salobo.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/20

1,096.2

503.2

112

42

29.0

1.3

12/21

1,201.7

592.1

132

57

24.6

1.8

12/22e

1,097.1

507.9

113

60

28.8

1.8

12/23e

1,358.7

663.4

147

61

22.1

1.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Salobo copper production +17.2% q-o-q

Vale’s production report revealed an increase in copper production from Salobo from 29.6kt in Q222 to 34.7kt in Q322. Despite rising 17.2% relative to the prior quarter, however, this increase implies pro rata gold production attributable to Wheaton from Salobo of 40,009oz, which is 9.0% lower than our prior expectation of 43,988oz. Notwithstanding better plant performance overall, Vale cited ‘additional planned and corrective maintenance performed in 3Q22’, which it indicated will also now continue into Q422.

Gold price down 2.5% and silver price down 3.8%

We have reduced our Q322 gold price estimate from US$1,772/oz to US$1,727/oz and our silver price from US$20.00/oz to US$19.24/oz. We have also adjusted our forecasts for cobalt and palladium and into Q422.

Valuation: Discounting growth less than inflation

Using a CAPM-type method to value WPM and applying a nominal discount rate of 9.0% to cash flows implies a ‘terminal’ valuation for WPM at end-FY26 of US$55.31 (C$76.07) per share (NB after the sale of the Yauliyacu stream announced in August) assuming zero subsequent long-term growth in real cash flows and 4% inflation. Stated alternatively, we calculate that WPM’s current share price of C$44.60 discounts a long-term compound annual average growth rate in nominal cash flows per share of just 2.7% pa, which is lower than the average rate of US inflation since 1984. Otherwise, assuming no purchases of additional streams in the foreseeable future (which we think unlikely), we forecast a value per share for WPM of US$33.99, or C$46.75 or £30.12 in FY22, based on a 30.1x historical multiple of contemporary earnings and US$56.59, or C$77.84 or £50.14 in FY26. In the meantime, WPM’s shares are trading on near-term financial ratios that are cheaper than those of its peers on at least 63% of common valuation measures. If WPM’s shares were instead to trade at the average level of its peers, then we calculate that its FY22 share price should be US$38.30, or C$52.68 or £33.94 (based on Edison forecasts). Alternatively, if precious metals return to favour, then we believe that a near-term US$48.23 (C$66.35 or £42.73) per share valuation is possible.

Updated Q3, Q4 and FY22 estimates

In the light of the changes noted previously, as well as recent moves in forex rates and WPM’s share price, our updated estimates for WPM for Q3, Q4 and FY22 are as follows:

Exhibit 1: WPM FY22 forecasts, by quarter*

US$000s
(unless otherwise stated)

Q122

Q222

Q322e

(prior)

Q322e

Q422e

(prior)

Q422e

FY22e

(current)

FY22e

(prior)

Silver production (koz)

6,206

6,537

5,532

5,532

5,532

5,532

23,806

23,806

Gold production (oz)

79,087

68,365

76,266

72,286

90,264

85,393

305,131

313,981

Palladium production (koz)

4,488

3,899

4,325

4,325

4,750

4,750

17,462

17,462

Cobalt production (klb)

234

136

241

241

347

347

958

958

Silver sales (koz)

5,553

5,848

4,868

4,868

5,392

5,392

21,661

21,661

Gold sales (oz)

77,901

84,337

70,750

67,057

90,232

85,361

314,656

323,219

Palladium sales (oz)

4,075

3,378

3,515

3,515

4,731

4,731

15,699

15,699

Cobalt sales (klb)

511

225

207

207

347

347

1,289

1,289

Avg realised Ag price (US$/oz)

24.19

22.27

20.00

19.24

20.44

19.63

21.42

21.80

Avg realised Au price (US$/oz)

1,870

1,872

1,772

1,727

1,791

1,659

1,783

1,827

Avg realised Pd price (US$/oz)

2,339

2,132

2,160

2,080

2,263

2,045

2,148

2,232

Avg realised Co price (US$/lb)

34.61

34.01

22.93

23.62

21.52

23.36

29.73

29.13

Avg Ag cash cost (US$/oz)

5.10

5.61

5.43

5.40

5.49

5.46

5.39

5.41

Avg Au cash cost (US$/oz)

477

465

453

454

447

446

460

460

Avg Pd cash cost (US$/oz)

394

408

389

374

407

368

385

400

Avg Co cash cost (US$/lb)

5.76

6.86

4.13

4.25

3.87

4.20

5.29

5.18

Sales

307,244

302,922

235,064

221,664

289,980

265,220

1,097,050

1,135,210

Cost of sales

Cost of sales, excluding depletion

69,994

74,943

60,719

58,923

73,222

70,699

274,558

278,877

Depletion

57,402

65,682

54,688

53,455

68,580

66,953

243,492

246,352

Total cost of sales

127,396

140,625

115,407

112,378

141,802

137,652

518,050

525,229

Earnings from operations

179,848

162,297

119,657

109,286

148,178

127,568

579,000

609,981

Expenses and other income

– General and administrative**

20,118

12,453

16,264

15,772

17,265

17,255

65,598

66,099

– Foreign exchange (gain)/loss

0

0

– Net interest paid/(received)

1,422

1,389

1,357

1,357

1,357

1,357

5,525

5,525

– Other (income)/expense

229

-974

-527

-527

-559

-547

-1,819

-1,831

Total expenses and other income

21,769

12,868

17,094

16,602

18,063

18,064

69,304

69,793

Earnings before income taxes

158,079

149,429

102,563

92,684

130,115

109,504

509,697

540,187

Income tax expense/(recovery)

72

144

250

250

250

250

716

716

Marginal tax rate (%)

0.0

0.1

0.2

0.3

0.2

0.2

0.1

0.1

Net earnings

158,007

149,285

102,313

92,434

129,865

109,254

508,981

539,471

Average no. shares in issue (000s)

450,915

451,524

451,524

451,524

451,524

451,524

451,372

451,372

Basic EPS (US$)

0.350

0.331

0.227

0.205

0.288

0.242

1.13

1.20

Diluted EPS (US$)

0.350

0.330

0.220

0.199

0.280

0.235

1.10

1.16

DPS (US$)

0.15

0.15

0.15

0.15

0.15

0.15

0.60

0.60

Source: Edison Investment Research. Note: *Excluding impairments, impairment reversals and exceptional items. **Forecasts now include stock-based compensation costs. Totals may not add up owing to rounding.

Our basic EPS forecast of US$1.13/share for FY22 (cf US$1.20/share previously) is 5.8% below the consensus forecast of US$1.20/share (source: Refinitiv, 24 October 2022). In this context, it is worth noting that our gold and silver price forecasts for the remainder of the year are now US$1,653/oz and US$19.42/oz, respectively, which are those prevailing at the time of writing (cf US$1,791/oz and US$20.44/oz previously).

Exhibit 2: WPM FY22 consensus EPS forecasts (US$/share), by quarter

Q122

Q222e

Q322e

Q422e

Sum Q1–Q422e

FY22e

Edison forecasts

0.350

0.331

0.205

0.242

1.128

1.13

Mean consensus

0.35

0.33

0.24

0.28

1.20

1.20

High consensus

0.35

0.33

0.35

0.39

1.42

1.47

Low consensus

0.35

0.33

0.19

0.22

1.09

1.07

Source: Refinitiv, Edison Investment Research. Note: As at 24 October 2022.

At the same time, we note that our FY23 EPS forecast of US$1.48/share is based on expected gold and silver prices of US$1,749/oz and US$24.55/oz, respectively. In the event of precious metals prices remaining at current levels for the whole of FY23, then we estimate that this figure would instead moderate to approximately US$1.14/share.

Exhibit 3: Financial summary

US$'000s

2016

2017

2018

2019

2020

2021

2022e

2023e

2024e

Dec

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

891,557

843,215

794,012

861,332

1,096,224

1,201,665

1,097,050

1,358,674

1,395,273

Cost of Sales

(254,434)

(243,801)

(245,794)

(258,559)

(266,763)

(287,947)

(274,558)

(323,933)

(321,189)

Gross Profit

637,123

599,414

548,218

602,773

829,461

913,718

822,492

1,034,742

1,074,084

EBITDA

 

 

602,684

564,741

496,568

548,266

763,763

852,733

756,894

969,144

1,008,486

Operating Profit (before amort. and except.)

 

 

293,982

302,361

244,281

291,440

519,874

597,940

513,402

662,558

668,980

Exceptionals

(71,000)

(228,680)

245,715

(156,608)

4,469

162,806

751

0

0

Other

(4,982)

8,129

(5,826)

217

387

190

1,819

0

0

Operating Profit

218,000

81,810

484,170

135,049

524,730

760,936

515,973

662,558

668,980

Net Interest

(24,193)

(24,993)

(41,187)

(48,730)

(16,715)

(5,817)

(5,525)

881

432

Profit Before Tax (norm)

 

 

269,789

277,368

203,094

242,710

503,159

592,123

507,877

663,440

669,411

Profit Before Tax (FRS 3)

 

 

193,807

56,817

442,983

86,319

508,015

755,119

510,448

663,440

669,411

Tax

1,330

886

(15,868)

(181)

(211)

(234)

(716)

(1,000)

(1,000)

Profit After Tax (norm)

266,137

286,383

181,400

242,746

503,335

592,079

508,981

662,440

668,411

Profit After Tax (FRS 3)

195,137

57,703

427,115

86,138

507,804

754,885

509,732

662,440

668,411

Average Number of Shares Outstanding (m)

430.5

442.0

443.4

446.0

448.7

450.1

451.4

451.5

451.5

EPS - normalised (c)

 

 

62

63

48

54

112

132

113

147

148

EPS - normalised and fully diluted (c)

 

 

62

63

48

54

112

131

110

143

144

EPS - (IFRS) (c)

 

 

45

13

96

19

113

168

113

147

148

Dividend per share (c)

21

33

36

36

42

57

60

61

66

Gross Margin (%)

71.5

71.1

69.0

70.0

75.7

76.0

75.0

76.2

77.0

EBITDA Margin (%)

67.6

67.0

62.5

63.7

69.7

71.0

69.0

71.3

72.3

Operating Margin (before GW and except.) (%)

33.0

35.9

30.8

33.8

47.4

49.8

46.8

48.8

47.9

BALANCE SHEET

Fixed Assets

 

 

6,025,227

5,579,898

6,390,342

6,123,255

5,755,441

6,046,427

6,046,366

6,684,232

6,743,826

Intangible Assets

5,948,443

5,454,106

6,196,187

5,768,883

5,521,632

5,940,538

5,940,477

6,578,343

6,637,937

Tangible Assets

12,163

30,060

29,402

44,615

33,931

44,412

44,412

44,412

44,412

Investments

64,621

95,732

164,753

309,757

199,878

61,477

61,477

61,477

61,477

Current Assets

 

 

128,092

103,415

79,704

154,752

201,831

249,724

501,087

253,313

562,315

Stocks

1,481

1,700

1,541

43,628

3,265

12,102

2,581

3,197

3,283

Debtors

2,316

3,194

2,396

7,138

5,883

11,577

6,011

7,445

7,645

Cash

124,295

98,521

75,767

103,986

192,683

226,045

492,495

242,671

551,387

Current Liabilities

 

 

(19,057)

(12,143)

(28,841)

(64,700)

(31,169)

(29,691)

(42,836)

(47,706)

(47,435)

Creditors

(19,057)

(12,143)

(28,841)

(63,976)

(30,396)

(28,878)

(42,023)

(46,893)

(46,622)

Short term borrowings

0

0

0

(724)

(773)

(813)

(813)

(813)

(813)

Long Term Liabilities

 

 

(1,194,274)

(771,506)

(1,269,289)

(887,387)

(211,532)

(16,343)

(16,343)

(16,343)

(16,343)

Long term borrowings

(1,193,000)

(770,000)

(1,264,000)

(878,028)

(197,864)

(2,060)

(2,060)

(2,060)

(2,060)

Other long term liabilities

(1,274)

(1,506)

(5,289)

(9,359)

(13,668)

(14,283)

(14,283)

(14,283)

(14,283)

Net Assets

 

 

4,939,988

4,899,664

5,171,916

5,325,920

5,714,571

6,250,117

6,488,275

6,873,496

7,242,363

CASH FLOW

Operating Cash Flow

 

 

608,503

564,187

518,680

548,301

784,843

851,686

786,944

971,964

1,007,929

Net Interest

(24,193)

(24,993)

(41,187)

(41,242)

(16,715)

(5,817)

(5,525)

881

432

Tax

28

(326)

0

(5,380)

(2,686)

(503)

(716)

(1,000)

(1,000)

Capex

(805,472)

(19,633)

(861,406)

10,571

149,648

(404,437)

(243,431)

(944,451)

(399,100)

Acquisitions/disposals

0

0

0

0

0

0

0

0

0

Financing

595,140

1,236

1,279

37,198

22,396

7,992

0

0

0

Dividends

(78,708)

(121,934)

(132,915)

(129,986)

(167,212)

(218,052)

(270,823)

(277,218)

(299,544)

Net Cash Flow

295,298

398,537

(515,549)

419,462

770,274

230,869

266,450

(249,823)

308,715

Opening net debt/(cash)

 

 

1,362,703

1,068,705

671,479

1,188,233

774,766

5,954

(223,172)

(489,622)

(239,798)

Other

(1,300)

(1,311)

(1,205)

(5,995)

(1,462)

(1,743)

0

0

0

Closing net debt/(cash)

 

 

1,068,705

671,479

1,188,233

774,766

5,954

(223,172)

(489,622)

(239,798)

(548,514)

Source: company sources, Edison Investment Research


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United Kingdom

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United States

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Germany

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United Kingdom

New York +1 646 653 7026

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3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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