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Research: Metals & Mining
Wheaton Precious Metals’ (WPM’s) Q323 results are scheduled for 9 November. This note adjusts our forecasts – principally for Q3 – for metals prices ( 0.3% simple average for the quarter since our last note), Penasquito (returning to production from mid October, rather than end August), a new life of mine production profile at Constancia (in the aftermath of a site visit in late September) and production at Salobo, Sudbury and Voisey’s Bay (in the aftermath of Vale’s production and sales report on 17 October). We have also re-phased capital payments for Salobo III from FY23 to FY24 and FY25.
Wheaton Precious Metals |
Honing Q323 numbers |
Q323 results preview |
Metals and mining |
23 October 2023 |
Share price performance
Business description
Next events
Analyst
Wheaton Precious Metals is a research client of Edison Investment Research Limited |
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Wheaton Precious Metals’ (WPM’s) Q323 results are scheduled for 9 November. This note adjusts our forecasts – principally for Q3 – for metals prices (0.3% simple average for the quarter since our last note), Penasquito (returning to production from midOctober, rather than endAugust), a new life of mine production profile at Constancia (in the aftermath of a site visit in late September) and production at Salobo, Sudbury and Voisey’s Bay (in the aftermath of Vale’s production and sales report on 17 October). We have also re-phased capital payments for Salobo III from FY23 to FY24 and FY25.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
1,201.7 |
592.1 |
132 |
57 |
33.1 |
1.3 |
12/22 |
1,065.1 |
497.7 |
112 |
60 |
39.0 |
1.4 |
12/23e |
969.8 |
468.7 |
111 |
60 |
39.4 |
1.4 |
12/24e |
1,434.9 |
686.6 |
151 |
64 |
28.8 |
1.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Salobo hits it out of the park
Our detailed estimates for Q323 are shown in Exhibit 1, overleaf. By far the largest of the effects noted above is the production of 49.6kt of copper at Salobo in Q3, which is its highest since Q419, when it produced 51.9kt and delivered an attributable 74,716oz gold to WPM. According to the correlation between the two, this level of copper production implies gold production attributable to WPM of 70,728oz in Q3 (±3,201oz) and compares with our prior expectation of 54,472oz. It is also instrumental in ensuring that WPM will meet its production guidance of 600k–660k gold equivalent ounces for the year (cf Edison’s current forecast of 602,277oz).
Looking further afield
Our current production forecast for gold attributable to WPM from Salobo in Q423 is 61,642oz and our Q4 EPS forecast would obviously be subject to a potential upgrade in the event that Q423 is as strong as, or stronger than, Q323.
Valuation: Heading for C$70 per share
Using a capital asset pricing model (CAPM)-type method, whereby we discount cash flows at a nominal 9% per year, our ‘terminal’ valuation of WPM in FY26 is little changed at US$54.02 (C$74.09) per share, assuming zero subsequent longterm growth in real cash flows. Alternatively, assuming no purchases of additional streams (which we think unlikely), we calculate a value per share for WPM of US$57.71 or C$79.16 or £47.56 in FY26, based on a 30.4x historical multiple of contemporary earnings. In the meantime, WPM’s shares are trading on near-term financial ratios that are lower than those of its peers on at least 52% of common valuation measures if Edison forecasts are used. Stated alternatively, if WPM were to trade at the average multiples of its peers, we calculate that its share price should be US$45.89, or C$62.94 currently (based on Edison forecasts and average consensus multiples).
Updated Q323 and FY23 forecasts
In the light of the changes to our assumptions described on page 1 of this report, our detailed forecasts for FY23, by quarter, are now as follows:
Exhibit 1: WPM FY23 forecast, by quarter*
US$000s |
Q123 |
Q223 |
Q323e |
Q323e |
Q423e |
Q423e |
FY23e |
FY23e |
Silver production (koz) |
4,927 |
4,417 |
4,222 |
3,257 |
5,732 |
4,562 |
17,163 |
19,299 |
Gold production (oz) |
73,037 |
85,083 |
85,790 |
103,240 |
94,482 |
96,414 |
357,773 |
338,392 |
Palladium production (koz) |
3,705 |
3,880 |
3,871 |
3,871 |
3,871 |
3,871 |
15,327 |
15,327 |
Cobalt production (klb) |
124 |
152 |
204 |
204 |
204 |
204 |
683 |
683 |
Silver sales (koz) |
3,749 |
4,437 |
3,391 |
2,624 |
5,344 |
3,026 |
13,836 |
16,921 |
Gold sales (oz) |
62,605 |
75,294 |
79,999 |
81,078 |
94,462 |
96,393 |
315,370 |
312,359 |
Palladium sales (oz) |
2,946 |
3,392 |
3,483 |
3,483 |
3,856 |
3,856 |
13,676 |
13,676 |
Cobalt sales (klb) |
323 |
265 |
204 |
204 |
204 |
204 |
995 |
995 |
Avg realised Ag price (US$/oz) |
22.85 |
24.13 |
23.25 |
23.56 |
22.74 |
22.99 |
23.43 |
23.23 |
Avg realised Au price (US$/oz) |
1,904 |
1,986 |
1,927 |
1,926 |
1,914 |
1,950 |
1,943 |
1,933 |
Avg realised Pd price (US$/oz) |
1,607 |
1,438 |
1,285 |
1,253 |
1,301 |
1,115 |
1,336 |
1,397 |
Avg realised Co price (US$/lb) |
15.04 |
13.23 |
15.16 |
15.16 |
15.16 |
15.16 |
14.60 |
14.60 |
Avg Ag cash cost (US$/oz) |
5.07 |
5.01 |
5.35 |
5.50 |
5.14 |
5.48 |
5.22 |
5.13 |
Avg Au cash cost (US$/oz) |
496 |
461 |
442 |
442 |
440 |
440 |
456 |
456 |
Avg Pd cash cost (US$/oz) |
294 |
261 |
231 |
226 |
234 |
201 |
242 |
253 |
Avg Co cash cost (US$/lb) |
3.30 |
3.20 |
2.73 |
2.73 |
2.73 |
2.73 |
3.04 |
3.04 |
Sales |
214,465 |
264,972 |
240,578 |
225,432 |
310,420 |
264,911 |
969,780 |
1,030,435 |
Cost of sales |
||||||||
Cost of sales, excluding depletion |
51,964 |
58,642 |
54,835 |
51,599 |
70,469 |
60,327 |
222,532 |
235,910 |
Depletion |
45,000 |
54,474 |
50,779 |
46,872 |
65,258 |
55,795 |
202,141 |
215,511 |
Total cost of sales |
96,964 |
113,116 |
105,614 |
98,470 |
135,727 |
116,122 |
424,673 |
451,421 |
Earnings from operations |
117,501 |
151,856 |
134,964 |
126,961 |
174,694 |
148,788 |
545,107 |
579,015 |
Expenses and other income |
||||||||
– General and administrative** |
18,874 |
16,640 |
17,875 |
16,436 |
17,525 |
18,799 |
70,750 |
70,914 |
– Foreign exchange (gain)/loss |
0 |
0 |
||||||
– Net interest paid/(received) |
1,378 |
1,352 |
1,454 |
1,454 |
1,454 |
1,454 |
5,639 |
5,639 |
– Other (income)/expense |
(7,387) |
(8,811) |
(8,431) |
(8,431) |
(7,352) |
(8,659) |
(33,288) |
(31,981) |
Total expenses and other income |
12,865 |
9,182 |
10,898 |
9,460 |
11,627 |
11,594 |
43,100 |
44,571 |
Earnings before income taxes |
104,636 |
142,675 |
124,066 |
117,502 |
163,066 |
137,194 |
502,007 |
534,443 |
Income tax expense/(recovery) |
205 |
91 |
250 |
250 |
250 |
250 |
796 |
796 |
Marginal tax rate (%) |
0.2 |
0.1 |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
0.1 |
Net earnings |
104,431 |
142,584 |
123,816 |
117,252 |
162,816 |
136,944 |
501,211 |
533,647 |
Average no. shares in issue (000s) |
452,370 |
452,892 |
452,892 |
452,892 |
452,892 |
452,892 |
452,762 |
452,762 |
Basic EPS (US$) |
0.231 |
0.315 |
0.273 |
0.259 |
0.360 |
0.302 |
1.11 |
1.18 |
Diluted EPS (US$) |
0.230 |
0.314 |
0.273 |
0.259 |
0.359 |
0.302 |
1.11 |
1.18 |
DPS (US$) |
0.15 |
0.15 |
0.15 |
0.15 |
0.15 |
0.15 |
0.60 |
0.60 |
Source: WPM accounts, Edison Investment Research. Note: *Excluding impairments, impairment reversals and exceptional items (except where indicated). **Forecasts now include stock-based compensation costs. Totals may not add up owing to rounding.
Our updated adjusted basic EPS forecast of US$1.11 per share for FY23 compares with the market consensus, as follows:
Exhibit 2: WPM FY23 consensus EPS forecasts (US$/share), by quarter
Q123 |
Q223 |
Q323e |
Q423e |
Sum Q1–Q423e |
FY23e |
|
Edison forecasts |
0.231 |
0.315 |
0.259 |
0.302 |
1.107 |
1.110 |
Mean consensus |
0.231 |
0.315 |
0.283 |
0.326 |
1.155 |
1.129 |
High consensus |
0.231 |
0.315 |
0.410 |
0.400 |
1.356 |
1.350 |
Low consensus |
0.231 |
0.315 |
0.240 |
0.270 |
1.056 |
1.030 |
Source: Refinitiv, Edison Investment Research. Note: As at 20 October 2023.
Exhibit 3: Financial summary
$000s |
|
2020 |
2021 |
2022 |
2023e |
2024e |
2025e |
|
Dec |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
1,096,224 |
1,201,665 |
1,065,053 |
969,780 |
1,434,872 |
1,583,451 |
Cost of Sales |
(266,763) |
(287,947) |
(267,621) |
(222,532) |
(323,013) |
(349,297) |
||
Gross Profit |
829,461 |
913,718 |
797,432 |
747,248 |
1,111,859 |
1,234,154 |
||
EBITDA |
|
|
763,763 |
852,733 |
735,245 |
676,498 |
1,041,109 |
1,163,404 |
Operating profit (before amort. and excepts.) |
|
|
519,874 |
597,940 |
503,293 |
474,357 |
685,058 |
804,870 |
Exceptionals |
4,469 |
162,806 |
164,214 |
(8,096) |
0 |
0 |
||
Other |
387 |
190 |
7,680 |
33,288 |
0 |
0 |
||
Operating Profit |
524,730 |
760,936 |
675,187 |
499,549 |
685,058 |
804,870 |
||
Net Interest |
(16,715) |
(5,817) |
(5,586) |
(5,639) |
1,520 |
1,409 |
||
Profit Before Tax (norm) |
|
|
503,159 |
592,123 |
497,707 |
468,718 |
686,578 |
806,279 |
Profit Before Tax (FRS 3) |
|
|
508,015 |
755,119 |
669,601 |
493,911 |
686,578 |
806,279 |
Tax |
(211) |
(234) |
(475) |
(796) |
(1,000) |
(1,000) |
||
Profit After Tax (norm) |
503,335 |
592,079 |
504,912 |
501,211 |
685,578 |
805,279 |
||
Profit After Tax (FRS 3) |
507,804 |
754,885 |
669,126 |
493,115 |
685,578 |
805,279 |
||
Average Number of Shares Outstanding (m) |
448.7 |
450.1 |
451.6 |
452.8 |
452.9 |
452.9 |
||
EPS - normalised (c) |
|
|
112 |
132 |
112 |
111 |
151 |
178 |
EPS - normalised and fully diluted (c) |
|
|
112 |
131 |
112 |
111 |
151 |
178 |
EPS - (IFRS) (c) |
|
|
113 |
168 |
148 |
109 |
151 |
178 |
Dividend per share (c) |
42 |
57 |
60 |
60 |
64 |
75 |
||
Gross Margin (%) |
75.7 |
76.0 |
74.9 |
77.1 |
77.5 |
77.9 |
||
EBITDA Margin (%) |
69.7 |
71.0 |
69.0 |
69.8 |
72.6 |
73.5 |
||
Operating Margin (before GW and except.) (%) |
47.4 |
49.8 |
47.3 |
48.9 |
47.7 |
50.8 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
5,755,441 |
6,046,427 |
6,039,813 |
6,133,330 |
6,593,717 |
6,821,622 |
Intangible Assets |
5,521,632 |
5,940,538 |
5,753,111 |
5,838,517 |
6,298,904 |
6,526,809 |
||
Tangible Assets |
33,931 |
44,412 |
30,607 |
32,377 |
32,377 |
32,377 |
||
Investments |
199,878 |
61,477 |
256,095 |
262,436 |
262,436 |
262,436 |
||
Current Assets |
|
|
201,831 |
249,724 |
720,093 |
854,229 |
795,767 |
1,034,311 |
Stocks |
3,265 |
12,102 |
13,817 |
2,282 |
3,376 |
3,726 |
||
Debtors |
5,883 |
11,577 |
10,187 |
5,314 |
7,862 |
8,676 |
||
Cash |
192,683 |
226,045 |
696,089 |
846,634 |
784,529 |
1,021,909 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(31,169) |
(29,691) |
(30,717) |
(28,816) |
(33,634) |
(34,894) |
Creditors |
(30,396) |
(28,878) |
(29,899) |
(27,998) |
(32,816) |
(34,076) |
||
Short term borrowings |
(773) |
(813) |
(818) |
(818) |
(818) |
(818) |
||
Long Term Liabilities |
|
|
(211,532) |
(16,343) |
(11,514) |
(11,514) |
(11,514) |
(11,514) |
Long term borrowings |
(197,864) |
(2,060) |
(1,152) |
(1,152) |
(1,152) |
(1,152) |
||
Other long term liabilities |
(13,668) |
(14,283) |
(10,362) |
(10,362) |
(10,362) |
(10,362) |
||
Net Assets |
|
|
5,714,571 |
6,250,117 |
6,717,675 |
6,947,229 |
7,344,337 |
7,809,525 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
784,843 |
851,686 |
749,429 |
726,128 |
1,042,284 |
1,163,501 |
Net Interest |
(16,715) |
(5,817) |
(5,586) |
(5,639) |
1,520 |
1,409 |
||
Tax |
(2,686) |
(503) |
34 |
(796) |
(1,000) |
(1,000) |
||
Capex |
149,648 |
(404,437) |
(44,750) |
(297,492) |
(816,439) |
(586,439) |
||
Acquisitions/disposals |
0 |
0 |
0 |
0 |
0 |
0 |
||
Financing |
22,396 |
7,992 |
10,171 |
0 |
0 |
0 |
||
Dividends |
(167,212) |
(218,052) |
(237,097) |
(271,657) |
(288,470) |
(340,090) |
||
Net Cash Flow |
770,274 |
230,869 |
472,201 |
150,545 |
(62,105) |
237,380 |
||
Opening net debt/(cash) |
|
|
774,766 |
5,954 |
(223,172) |
(694,119) |
(844,664) |
(782,559) |
Other |
(1,462) |
(1,743) |
(1,254) |
(0) |
0 |
(0) |
||
Closing net debt/(cash) |
|
|
5,954 |
(223,172) |
(694,119) |
(844,664) |
(782,559) |
(1,019,939) |
Source: Company sources, Edison Investment Research
|
|
Research: TMT
For H124, Datatec reported 15% y-o-y revenue growth, gross margin expansion, EBITDA growth of 39% and adjusted EBITDA growth of 2%. Underlying EPS increased 336% to 9.6c. After incurring restructuring charges and elevated share-based compensation in FY23, H124 provided a cleaner set of numbers. Supply chain issues eased during H1 allowing Datatec to reduce its order backlog by 21% from the end of FY23. The company is seeing strong demand for cyber security and networking solutions, and while challenges still persist in Latin America, it expects FY24 performance to improve versus FY23 for all divisions.