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Last close As at 09/06/2023
GBP20.42
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GBP5,059m
Research: Metals & Mining
Endeavour’s Q322 results released this morning put it solidly on track to meet the top end of its guidance for the year of 1,315–1,400koz of production at an all-in sustaining cost (AISC) of US$880–930/oz. Production in the quarter was 9.2% above our prior expectation, at 342.7koz (1,370.8koz annualised), while AISC was 8.5% below it, at US$960/oz (US$920/oz year to date), driven by continued strong performances at Endeavour’s Ity and Houndé flagships, in particular, and despite the typical impact of the rainy season. Cash costs (including royalties) amounted to US$839/oz (cf our estimate of US$836/oz).
Endeavour Mining |
On track to hit top end of production guidance |
Q322 results |
Metals and mining |
10 November 2022 |
Share price performance
Business description
Analyst
Endeavour Mining is a research client of Edison Investment Research Limited |
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Endeavour’s Q322 results released this morning put it solidly on track to meet the top end of its guidance for the year of 1,315–1,400koz of production at an all-in sustaining cost (AISC) of US$880–930/oz. Production in the quarter was 9.2% above our prior expectation, at 342.7koz (1,370.8koz annualised), while AISC was 8.5% below it, at US$960/oz (US$920/oz year to date), driven by continued strong performances at Endeavour’s Ity and Houndé flagships, in particular, and despite the typical impact of the rainy season. Cash costs (including royalties) amounted to US$839/oz (cf our estimate of US$836/oz).
Year end |
Revenue |
EBITDA |
PBT* |
Operating cash flow per share (US$) |
DPS |
Yield |
12/20 |
1,847.9 |
910.3 |
501.2 |
5.35 |
37 |
2.0 |
12/21 |
2,903.8 |
1,517.3 |
756.5 |
4.83 |
56 |
3.0 |
12/22e |
2,410.9 |
1,241.7 |
572.7 |
4.51 |
81 |
4.3 |
12/23e |
2,219.0 |
1,223.2 |
763.8 |
3.76 |
84 |
4.5 |
Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
In financial terms, total net and comprehensive income was 5.6% above our forecast, albeit this included an exceptional US$60.1m gain on financial instruments and a tax charge inflated by an unusually large US$48m withholding tax payment linked to the upstreaming of cash to redeem the company’s convertible bond in February 2023, which increased Endeavour’s effective tax rate during the quarter to a preternaturally high 49.2%. Stripping out the effect of the financial gain (but including the realised gains on gold hedges of US$19.7m among other items), adjusted net EPS from continuing operations amounted to US$0.23/share (cf our prior forecast of US$0.21/share). Similarly, underlying adjusted EBITDA (including realised gold hedging gains) amounted to US$275.4m (cf our prior estimate of US$250.6m). In the meantime, Endeavour has continued with its shareholder returns programme, buying back an additional US$37m in shares during the quarter. So far, it has returned $513m to shareholders in the form of dividends and buybacks since early 2021 (US$175m year to date), which appear set to continue indefinitely into the future. The third quarter of any particular financial year is almost inevitably Endeavour’s worst on account of the seasonal rains in West Africa. By contrast, the fourth quarter is almost invariably its best. At this stage, however, we do not anticipate any material changes to our forecasts in the wake of Q3 results.
In our last note on the company, using an absolute valuation methodology, whereby we discounted back five years of cash flows and then applied an ex-growth, ad infinitum multiple to steady-state terminal cash flows in FY26, we calculated a present valuation for Endeavour of US$35.46/share if performed using a 10% discount rate or US$55.63/share if performed using a CAPM-derived (real) discount rate of 6.75% (calculated from expected long-term equity returns of 9% and inflation expectations of 2.11%, as measured by US 30-year break-evens). Both are subject to revisions relating to Endeavour’s development of the Lafigué project (which will be included in our formal results note). In the meantime, Endeavour remains the largest premium LSE-listed pure gold producer in the UK 100 index and at a discount to the average multiples of its peers on at least 79% of common valuation measures.
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Research: Healthcare
Context Therapeutics’ Q322 report focused on pipeline progress, reporting interim data from two Phase II trials (advanced endometrial and ovarian cancer). Preliminary data from the former (ONA-XR+anastrozole) was encouraging, with a four-month PFS of 77.7%, superior to historical data from either drug alone, although we note that the small sample size limits our ability to draw definitive conclusions. Q322 operating performance was in line with expectations, with R&D expenses of $2.1m. We anticipate that these will rise further in Q422 following initiation of the Phase Ib/II ELONA trial in November 2022. Based on our cash burn projections, the period-end cash balance of $39.4m should be sufficient to fund operations into Q124, in line with management guidance. We view the forthcoming readout from the Phase II trial in HR+/HER2- metastatic breast cancer (mBC) as the next key catalyst for the company. We reduce our valuation slightly to $9.18/share on lower net debt.
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