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Research: Metals & Mining
In preparation for FY22 results on 9 March, Endeavour has released preliminary operational results. Q422 saw a 4% increase in gold production, totalling 355koz, showing a strong close to the year, whereas all-in sustaining costs (AISC) remained stable at c US$954/oz. As such, FY22 marks the 10th year in which Endeavour has either achieved or beaten both its production and AISC cost guidance (see below). Looking to FY23, production guidance is broadly comparable at 1,325–1,425koz and AISC of US$940–995/oz. Endeavour also announced an H222 dividend of US$100m confirming a FY22 total dividend of $200m, 33% above its minimum committed level of US$150m.
Endeavour Mining |
Meeting guidance for 10th consecutive year |
Q422 preliminary results and FY23 estimates |
Metals and mining |
1 February 2023 |
Share price performance
Business description
Next events
Analysts
Endeavour Mining is a research client of Edison Investment Research Limited |
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In preparation for FY22 results on 9 March, Endeavour has released preliminary operational results. Q422 saw a 4% increase in gold production, totalling 355koz, showing a strong close to the year, whereas all-in sustaining costs (AISC) remained stable at c US$954/oz. As such, FY22 marks the 10th year in which Endeavour has either achieved or beaten both its production and AISC cost guidance (see below). Looking to FY23, production guidance is broadly comparable at 1,325–1,425koz and AISC of US$940–995/oz. Endeavour also announced an H222 dividend of US$100m confirming a FY22 total dividend of $200m, 33% above its minimum committed level of US$150m.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
1,847.9 |
501.2 |
185.3 |
37 |
15.7 |
1.3 |
12/21 |
2,903.8 |
756.5 |
205.0 |
56 |
14.2 |
1.9 |
12/22e |
2,488.1 |
560.2 |
103.7 |
81 |
28.1 |
2.8 |
12/23e |
2,635.8 |
620.9 |
151.2 |
82 |
19.3 |
2.8 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Positive preliminary results
FY22 gold production from continuing operations totalled 1,400koz, at the top end of Endeavour’s guidance of 1,315–1,400koz, while AISC were c US$928/oz, achieving the guided US$880–930/oz despite industry-wide inflationary pressures. Production guidance for FY23 is 1,325–1,425koz, while AISC are expected to remain consistent with those of recent quarters at US$940–995/oz.
Impressive shareholder returns and cash position
The H222 interim dividend of US$100m confirmed a distribution of US$200m for the full year. This represents a US$50m (33%) uplift relative to the minimum committed level of US$150m, while not compromising net cash, which increased by US$119m over the quarter to US$121m (Endeavour’s calculation). At the same time, share buybacks added US$98.7m to shareholder returns during FY22.
Valuation: Consistent valuation before FY22 results
We broadly maintain our valuation methodology ahead of the FY22 results, whereby we discount back five years of cash flows then apply an ex-growth, ad infinitum multiple to steady-state terminal cash flows in FY26. This implies a present valuation for the company of US$35.07 (C$46.84 or £28.35), previously US$35.54 per share if performed using a 10% discount rate or US$57.32 (C$76.56 or £46.33) per share if performed using a CAPM-derived (real) discount rate of 6.51% (based on inflation expectations of 2.34% derived from US 30-year break-evens). To these valuations a further US$4.30–7.45/share may be added to reflect the value of Endeavour’s five-year exploration programme (see The second five-year plan, published on 20 October 2021).
Positive dividend announcement
Endeavour announced a strong H222 interim dividend of US$100m (approximately US$0.41 per share), resulting in a total dividend for the year of US$200m (c US$0.81/share). This represents a US$50m or 33% uplift relative to the base dividend commitment for the year.
The ex-dividend date for the H222 interims 23 February 2023 and the record date will be 24 February 2023, with the payment being paid to shareholders around 28 March 2023. Shareholder returns are also being supplemented through the company’s share buyback programme, of which a total of US$98.7m, or 4.6m shares, were repurchased during the year. Alongside its robust dividend results, Endeavour also ended the year with a net cash position of US$121.1m, which represents an increase of US$118.6m relative to the prior quarter and US$44.9m over the prior year.
FY22 operational performance updates
Endeavour ended an impressive FY22 with production from continuing operations of 1,400koz, achieving the top end of the guided 1,315–1,400koz range, while AISC amounted to c US$928/oz, within a guided range of $880–930/oz. Strong production performance was largely related to the Houndé and Ity assets, which benefitted from higher than planned throughput, and the Mana mine where higher than expected open pit mining tonnages were extracted from the Wona open pit prior to its depletion. Although industry-wide inflationary pressures have typically affected costing, in Endeavour’s case they were partially offset by favourable foreign exchange movements as the euro declined against the dollar, as well as group-wide optimisation initiatives.
Q422 preliminary results and forecasts
Endeavour’s Q422 preliminary results met the top end of its guidance for the year of 1,400koz for production at an AISC of US$928/oz. In addition to incorporating its Q422 preliminary results into our full-year forecast, we have updated our gold price forecast to reflect a fractionally marginally increased gold price in Q4 (US$1,728/oz vs US$1,727/oz previously). We have also attempted to forecast the effect of realised hedging gains and losses on earnings in the form of an estimate of the intrinsic value of these contracts for the quarter included in profit/(loss) on financial instruments. As a result (and with the usual caveat around quarterly estimates), our updated forecast for adjusted net earnings attributable to shareholders for FY22 for Endeavour in the wake of its Q422 preliminary results is now as follows:
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Exhibit 1: Endeavour Mining FY22 forecasts, by quarter |
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Source: Endeavour Mining, Edison Investment Research. Note: *Includes Karma and Sabodala-Massawa streams. **Excludes royalty costs. ***Includes 10.2koz produced and 10.1koz sold from Karma in Q122. |
Please note that in Q420 Endeavour changed its definition of cash costs to include royalties. The decision was made so that Endeavour may be more consistent in reporting within the context of its peer group. For reasons of comparability with past results, however, as well as ease of forecasting (given royalties are reported as a standalone item distinct from operating expenses), we are continuing to calculate total cash costs in Exhibits 1 and 3 excluding royalties.
In the wake of the changes made to our Q422 forecasts, a comparison between our quarterly and full-year forecast and consensus forecasts for FY22 adjusted net EPS is as follows:
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Exhibit 2: Edison-adjusted net EPS from continuing operations estimates vs consensus FY22 by quarter |
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Source: Refinitiv, Edison Investment Research. Note: Consensus at 27 January 2022. |
FY23 forecasts
In line with its Q4 preliminary production results, Endeavour also released initial FY23 guidance indicating comparable operational performances with FY22 in production of 1,325–1,425koz (vs 1,400koz in FY22) and AISC of US$940–995/oz (vs US$928oz in FY22). In light of this guidance, we have updated our FY23 forecasts as follows:
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Exhibit 3: Endeavour Mining FY23 forecasts, by quarter |
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Source: Endeavour Mining, Edison Investment Research. Note: *Includes Karma and Sabodala-Massawa streams. **Excludes royalty costs. ***Includes 10.2koz produced and 10.1koz sold from Karma in Q122. |
A comparison between our quarterly and full-year forecast and consensus forecasts for FY23 adjusted net EPS is as follows:
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Exhibit 4: Edison-adjusted net EPS from continuing operations estimates and consensus FY22 by quarter |
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Source: Refinitiv, Edison Investment Research. Note: Consensus at 27 January 2023. |
Valuation
Endeavour is a multi-asset company that has shown a willingness and desire to trade assets to maintain production, reduce costs and maximise returns to shareholders (eg the sale of Youga in FY16, Nzema in FY17, Tabakoto in FY18, Agbaou in FY20 and Karma in FY22, and the acquisition of SEMAFO in FY20 and Teranga in FY21). Historically, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY22, for Endeavour, we have opted to discount five years of forecast cash flows in FY22–26 back to FY22, then apply an ex-growth terminal multiple of 10x (consistent with using a standardised discount rate of 10%) to forecast cash flows in that year (ie FY26). In the normal course of events, exploration expenditure would have been excluded from such a calculation on the basis that it is an investment. In the case of Endeavour, however, we included it because it was a critical component of ongoing business performance in the company’s ability to continually expand and extend the lives of its mines.
In the wake of Q4 preliminary operational results, we have updated our estimate of cash flows in FY26 to US$4.26/share (US$4.24/share previously), which implies a terminal valuation of the company at end-FY26 of US$42.57/share (US$42.44/share previously) if calculated using a discount rate of 10%. In conjunction with forecast intervening cash flows, this terminal valuation then discounts back to a present valuation of US$35.07/share (US$35.02/share previously) at the start of FY22, as follows:
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Exhibit 5: Endeavour forecast valuation and cash flow per share, FY22–26e (US$/share) |
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Source: Edison Investment Research |
Given its elevation into the ranks of the world’s foremost producers of gold, however, we believe Endeavour can increasingly attract lower-cost finance and, as such, a CAPM-derived WACC can also be considered. In this case, long-term nominal equity returns have been 9% and 30-year break-evens are expecting an inflation rate of 2.3339% (source Bloomberg, 26 January) versus 2.3754% previously. These two measures imply an expected real equity return of 6.51% (1.09/1.023339) and applying this to our forecast cash flows would imply a terminal valuation for Endeavour of US$65.35/share (US$65.59/share previously) and a current valuation of US$57.32/share (US$57.63/share previously).
Endeavour peer valuation
Endeavour’s valuation on a series of commonly used measures relative to a selection of gold mining majors (the ranks of which it has now joined since its takeover of SEMAFO and Teranga) is as follows:
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Exhibit 6: Endeavour’s valuation relative to peers |
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Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced at 27 January 2023. |
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Of note is that, without exception, Endeavour’s valuation is materially lower than the averages of the majors on all the measures shown in Exhibit 6, regardless of whether Edison or consensus forecasts are used. On an individual basis, it is cheaper than its senior gold mining peers on at least 50 out of 54 (93%) valuation measures if Edison forecasts are used and 48 out of 54 (89%) valuation measures if consensus forecasts are used. Reverse engineered, the average valuation measures of its peers imply an average share price for Endeavour of US$38.79, or C$57.53 (or £31.37), per share.
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Exhibit 7: Financial summary |
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Source: Company sources, Edison Investment Research. Note: Presented on a pro-forma basis including SEMAFO from FY18 balance sheet and Teranga from FY20 balance sheet. EPS normalised from FY18 to reflect continuing business only. *Excludes restricted cash. |
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Research: TMT
CLIQ Digital’s FY22 update showed strong year-on-year growth across all KPIs, as it continues to roll out its subscription-based bundled-content streaming services. The results were broadly in line with our expectations and CLIQ finished the year with a stronger-than-expected net cash position of €10m. Looking ahead, driven by continued investment into marketing and content, management expects FY23 revenue and EBITDA to exceed €345m and €50m, respectively, reflecting growth of at least 25% and 15%. We will update our numbers following the publication of the annual report, scheduled for 21 February.
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