Currency in GBP
Last close As at 26/05/2023
GBP19.66
▲ −26.00 (−1.31%)
Market capitalisation
GBP4,865m
Research: Metals & Mining
Endeavour’s Q222 results are scheduled for release on 3 August. As at the quarter’s end, we have revised our financial forecasts for the company for FY22 to reflect a slightly higher gold price for the quarter (US$1,873/oz cf US$1,866/oz previously), a slightly lower gold price for the remainder of the year (US$1,812/oz cf US$1,823/oz previously), and a slightly higher proportion of material processed from lower-grade stockpiles in Q2 as operations have focused on waste stripping ahead of the rainy season in Q3 at Boungou, Sabodala-Massawa and Wahgnion, in particular. In the meantime, Endeavour is trading at a 27% discount to the average multiples of its peers, which imply a share price of US$28.66 (C$36.97 or £23.70).
Endeavour Mining |
Pre-positioning ahead of rains |
Q222 results preview |
Metals and mining |
4 July 2022 |
Share price performance
Business description
Next events
Analyst
Endeavour Mining is a research client of Edison Investment Research Limited |
Endeavour’s Q222 results are scheduled for release on 3 August. As at the quarter’s end, we have revised our financial forecasts for the company for FY22 to reflect a slightly higher gold price for the quarter (US$1,873/oz cf US$1,866/oz previously), a slightly lower gold price for the remainder of the year (US$1,812/oz cf US$1,823/oz previously), and a slightly higher proportion of material processed from lower-grade stockpiles in Q2 as operations have focused on waste stripping ahead of the rainy season in Q3 at Boungou, Sabodala-Massawa and Wahgnion, in particular. In the meantime, Endeavour is trading at a 27% discount to the average multiples of its peers, which imply a share price of US$28.66 (C$36.97 or £23.70).
Year end |
Revenue (US$m) |
EBITDA (US$m) |
PBT* |
Operating cash flow per share (US$) |
DPS |
Yield |
12/20 |
1,847.9 |
910.3 |
501.2 |
5.35 |
37 |
1.8 |
12/21 |
2,903.8 |
1,517.3 |
756.5 |
4.83 |
56 |
2.7 |
12/22e |
2,492.1 |
1,347.5 |
689.3 |
4.86 |
62 |
3.0 |
12/23e |
2,219.0 |
1,223.2 |
762.7 |
3.86 |
70 |
3.4 |
Note: *PBT is normalised, excluding amortisation of acquired intangibles and exceptional items.
Changes to financial forecasts immaterial
As a result of the changes to our assumptions, we have reduced our production forecasts for Q222 by 9.3koz at Boungou, 10.5koz at Sabodala-Massawa and 5.3koz at Wahgnion and by 25.1koz (or 7.3%) for the group as a whole in Q222. For the full year, this equates to a 1.3% reduction in our production forecast to 1,358.8koz, which is close to the middle of the company’s range of guidance for FY22 of 1,315–1,400koz, at an all-in sustaining cost in the range US$880–930/oz. However, this translates into only a very modest 1.3% reduction in our forecast for net adjusted EPS from continuing operations for the year (full details of our updated forecasts are available overleaf).
Valuation: Little changed at upwards of US$28.66
Given that our financial forecasts for FY22 are not much changed, neither is our valuation of Endeavour. Using an absolute valuation methodology, whereby we discount back five years of cash flows and then apply an ex-growth, ad infinitum multiple to steady-state terminal cash flows in FY26, implies a present valuation for the company of US$35.88 (C$46.28 or £29.67) per share if performed using a 10% discount rate (cf US$35.96 previously) or US$57.64 (C$74.31 or £47.66) per share if performed using a CAPM-derived (real) discount rate of 6.57% (based on sharply reduced inflation expectations of 2.28% derived from US 30-year break-even rates cf 2.53% previously). 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). Otherwise, Endeavour is trading at a discount to the average multiples of its peers on at least 68% of common valuation measures, regardless of whether Edison or consensus forecasts are used, despite its being the largest premium LSE-listed pure gold producer in the FTSE 100 Index.
Updated FY22 forecasts
In the wake of the aforementioned changes, our updated forecasts for Endeavour are as follows:
Exhibit 1: Endeavour Mining FY22e forecasts, by quarter
US$000s (unless otherwise indicated) |
Q122a |
Q222e |
Q222e |
Q322e |
Q322e |
Q422e |
Q422e |
FY22e |
FY22e |
Houndé production (koz) |
73.1 |
76.4 |
76.4 |
68.8 |
68.8 |
57.3 |
57.3 |
275.5 |
275.5 |
Agbaou production (koz) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Karma production (koz) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Ity production (koz) |
72.4 |
67.8 |
67.8 |
63.2 |
63.2 |
63.2 |
63.2 |
266.5 |
266.5 |
Boungou production (koz) |
33.8 |
35.3 |
26.0 |
29.9 |
29.9 |
30.4 |
30.4 |
120.1 |
129.4 |
Mana production (koz) |
52.6 |
49.3 |
49.3 |
40.6 |
40.6 |
43.1 |
43.1 |
185.6 |
185.6 |
Sabodala-Massawa |
96.3 |
85.9 |
75.4 |
98.2 |
98.2 |
98.2 |
98.2 |
368.0 |
378.5 |
Wahgnion |
28.9 |
32.8 |
27.5 |
33.4 |
33.4 |
43.1 |
43.1 |
132.9 |
138.2 |
Total gold produced (koz) |
357.1 |
347.5 |
322.3 |
334.0 |
334.0 |
335.1 |
335.1 |
**1,358.8 |
**1,384.0 |
Total gold sold (koz) |
359.1 |
347.5 |
322.3 |
334.0 |
334.0 |
335.1 |
335.1 |
**1,360.6 |
**1,385.8 |
Gold price (US$/oz) |
1,911 |
1,866 |
1,873 |
1,823 |
1,812 |
1,823 |
1,812 |
1,844 |
1,848 |
Mine level cash costs (US$/oz)* |
609 |
713 |
722 |
688 |
643 |
699 |
655 |
661 |
681 |
Mine level AISC (US$/oz) |
809 |
973 |
995 |
933 |
888 |
900 |
855 |
889 |
907 |
Revenue |
|||||||||
– Gold revenue |
686,200 |
645,167 |
600,831 |
605,278 |
601,626 |
607,151 |
603,488 |
2,492,144 |
2,543,796 |
Cost of sales |
|||||||||
– Operating expenses |
217,500 |
247,732 |
232,879 |
229,786 |
214,932 |
234,301 |
219,448 |
884,759 |
929,320 |
– Royalties |
41,000 |
39,306 |
36,657 |
36,641 |
36,420 |
36,656 |
36,434 |
150,511 |
153,603 |
Gross profit |
427,700 |
358,129 |
331,295 |
338,851 |
350,273 |
336,194 |
347,605 |
1,456,874 |
1,460,874 |
Depreciation |
(152,000) |
(151,311) |
(136,452) |
(152,389) |
(152,725) |
(160,581) |
(160,934) |
(602,111) |
(616,281) |
Expenses |
|||||||||
– Corporate costs |
(14,000) |
(13,000) |
(15,000) |
(12,000) |
(15,000) |
(11,000) |
(15,000) |
(59,000) |
(50,000) |
– Impairments |
0 |
0 |
0 |
||||||
– Acquisition etc costs |
(200) |
(200) |
(200) |
||||||
– Share based compensation |
(7,700) |
(6,777) |
(6,607) |
(6,999) |
(6,999) |
(6,999) |
(6,999) |
(28,304) |
(28,474) |
– Exploration costs |
(7,100) |
(5,000) |
(5,000) |
(5,000) |
(5,000) |
(5,000) |
(5,000) |
(22,100) |
(22,100) |
Total expenses |
(29,000) |
(24,777) |
(26,607) |
(23,999) |
(26,999) |
(22,999) |
(26,999) |
(109,604) |
(100,774) |
Earnings from operations |
246,700 |
182,041 |
168,237 |
162,463 |
170,550 |
152,614 |
159,673 |
745,159 |
743,818 |
Interest income |
0 |
0 |
|||||||
Interest expense |
(15,200) |
(14,373) |
(14,373) |
(12,726) |
(13,036) |
(11,156) |
(11,411) |
(54,019) |
(53,455) |
Net interest |
(15,200) |
(14,373) |
(14,373) |
(12,726) |
(13,036) |
(11,156) |
(11,411) |
(54,019) |
(53,455) |
Loss on financial instruments |
(178,800) |
(178,800) |
(178,800) |
||||||
Other expenses |
(2,000) |
(2,000) |
(2,000) |
||||||
Profit before tax |
50,700 |
167,668 |
153,864 |
149,737 |
157,514 |
141,458 |
148,262 |
510,340 |
509,563 |
Current income tax |
74,700 |
44,173 |
42,260 |
40,387 |
43,296 |
38,175 |
41,079 |
201,335 |
197,435 |
Deferred income tax |
11,200 |
0 |
0 |
0 |
0 |
0 |
0 |
11,200 |
11,200 |
Total tax |
85,900 |
44,173 |
42,260 |
40,387 |
43,296 |
38,175 |
41,079 |
212,535 |
208,635 |
Effective tax rate (%) |
(169.4) |
26.3 |
27.5 |
27.0 |
27.5 |
27.0 |
27.7 |
41.6 |
40.9 |
Profit after tax |
(35,200) |
123,495 |
111,604 |
109,350 |
114,218 |
103,283 |
107,183 |
297,805 |
300,928 |
Net profit from discontinued ops. |
14,800 |
0 |
0 |
0 |
0 |
0 |
0 |
14,800 |
14,800 |
Total net and comprehensive income |
(20,400) |
123,495 |
111,604 |
109,350 |
114,218 |
103,283 |
107,183 |
312,605 |
315,728 |
Minority interest |
21,800 |
18,046 |
17,580 |
15,996 |
17,347 |
15,086 |
16,435 |
73,162 |
70,928 |
Minority interest (%) |
(106.9) |
14.6 |
15.8 |
14.6 |
15.2 |
14.6 |
15.3 |
23.4 |
22.5 |
Profit attributable to shareholders |
(42,200) |
105,449 |
94,023 |
93,355 |
96,872 |
88,196 |
90,748 |
239,443 |
244,800 |
Basic EPS from continuing ops (US$) |
(0.23) |
0.424 |
0.378 |
0.376 |
0.390 |
0.355 |
0.365 |
0.904 |
0.926 |
Diluted EPS from continuing ops (US$) |
(0.23) |
0.422 |
0.376 |
0.374 |
0.388 |
0.353 |
0.363 |
0.899 |
0.921 |
Basic EPS (US$) |
(0.17) |
0.424 |
0.378 |
0.376 |
0.390 |
0.355 |
0.365 |
0.964 |
0.985 |
Diluted EPS (US$) |
(0.17) |
0.422 |
0.376 |
0.374 |
0.388 |
0.353 |
0.363 |
0.959 |
0.980 |
Norm. basic EPS from cont. ops (US$) |
0.49 |
0.424 |
0.378 |
0.376 |
0.390 |
0.355 |
0.365 |
1.625 |
1.646 |
Norm. diluted EPS from cont. ops (US$) |
0.49 |
0.422 |
0.376 |
0.374 |
0.388 |
0.353 |
0.363 |
1.616 |
1.638 |
Adj net earnings attributable (US$000s) |
122,300 |
105,449 |
94,023 |
93,355 |
96,872 |
88,196 |
90,748 |
403,943 |
409,300 |
Adj net EPS from continuing ops (US$) |
0.49 |
0.424 |
0.378 |
0.376 |
0.390 |
0.355 |
0.365 |
1.626 |
1.648 |
Source: Endeavour Mining, Edison Investment Research. Note: *Excludes royalty costs. **Includes 10.2koz produced and 10.1koz sold from Karma in Q122.
Items included in the reconciliation between adjusted net earnings attributable and total net and comprehensive earnings are losses from discontinued operations, gains/losses on financial instruments, other expenses and acquisition costs (all shown independently in the table above), plus the tax impact of adjusting items, non-cash and other adjustments and the minority interest attributable to the adjusting items (not shown independently). As noted previously, Endeavour has now changed its definition of adjusted net earnings attributable, such that deferred tax effects and share-based payments are no longer included in the adjustments to total net and comprehensive earnings, and this is now the manner in which our FY22 forecasts are presented. Readers are also reminded that Endeavour changed its definition of cash costs in Q420 to include royalties. The decision was made so that Endeavour may be more consistent in reporting in the context of its peer group. For reasons of comparability with past results, however, as well as ease of forecasting (given that royalties are reported as a discreet item distinct from operating expenses), we are continuing to show total cash costs excluding royalties.
Within this context, a comparison between our quarterly and full-year forecast and consensus forecasts for FY22 is as follows:
Exhibit 2: Edison adjusted net EPS from continuing operations estimates cf consensus FY22 by quarter
(US$/share) |
Q122a |
Q222e |
Q322e |
Q422e |
Sum Q1–Q422 |
FY22e |
Edison |
0.493 |
0.378 |
0.390 |
0.365 |
1.626 |
1.626 |
Mean consensus forecast |
0.49 |
0.48 |
0.49 |
0.53 |
1.99 |
1.71 |
High consensus forecast |
0.49 |
0.92 |
0.93 |
0.87 |
3.21 |
2.17 |
Low consensus forecast |
0.49 |
0.33 |
0.24 |
0.36 |
1.42 |
1.10 |
Source: Refinitiv, Edison Investment Research. Note: Consensus at 30 June 2022.
Of particular note, within the context of our financial and operating forecasts for the individual quarters, is the absence of any material decline in either production or profitability in Q3 (being the quarter historically most susceptible to disruption from the seasonal rains in West Africa). In this case, however, we are expecting a material increase in production at Sabodala-Massawa in Q322 and H222. Mining activities are expected to continue at the Massawa Central Zone for the remainder of the year along with additional mining at the Sofia North and Sofia Main pits, while mining at the Massawa North Zone is expected to commence mid-year, with non-refractory ore available for immediate treatment in the carbon-in-leach (CIL) plant, while refractory and transitional material is stockpiled. Mined and processed grades are therefore expected to increase materially in H222 compared to Q222.
Self-evidently, one of the principal presumptions behind our forecasts is that there are no major deleterious effects to ongoing operations as a result of the COVID-19 pandemic. We also assume no collateral escalation of war between Russia and Ukraine into West Africa. To date, the effect of COVID-19 on Endeavour’s operations in West Africa has been negligible and is expected to remain so, all other things being equal, as the company has now been able to vaccinate more than 50% of its workforce in an ongoing programme of pandemic mitigation. In addition, Endeavour has further mitigated future risks as far as possible by setting itself up to operate under level 2 COVID-19 restrictions (see our note New senior gold major looking to join FTSE 100, published on 17 December 2020) and by preparing multiple different levels in its pits from which to produce, thereby affording it greater operational flexibility in the event of unanticipated future disruptions.
Exhibit 3: Financial summary
US$'000s |
2019 |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
1,362,121 |
1,847,894 |
2,903,756 |
2,492,144 |
2,218,986 |
2,235,703 |
Cost of Sales |
(884,869) |
(1,061,891) |
(1,675,393) |
(1,144,874) |
(995,810) |
(1,007,684) |
||
Gross Profit |
477,252 |
786,003 |
1,228,363 |
1,347,270 |
1,223,175 |
1,228,019 |
||
EBITDA |
|
|
618,443 |
910,295 |
1,517,263 |
1,347,470 |
1,223,175 |
1,228,019 |
Operating Profit (before amort. and except.) |
|
281,400 |
546,072 |
859,409 |
745,359 |
758,879 |
703,822 |
|
Exceptionals |
(199,159) |
(201,532) |
(266,000) |
(179,000) |
0 |
0 |
||
Other |
(9,392) |
8,886 |
(32,263) |
(2,000) |
0 |
0 |
||
Operating Profit |
72,849 |
353,426 |
561,146 |
564,359 |
758,879 |
703,822 |
||
Net Interest |
(51,607) |
(53,774) |
(70,623) |
(54,019) |
3,839 |
5,512 |
||
Profit Before Tax (norm) |
|
|
220,401 |
501,184 |
756,523 |
689,340 |
762,719 |
709,334 |
Profit Before Tax (FRS 3) |
|
|
21,242 |
299,652 |
490,523 |
510,340 |
762,719 |
709,334 |
Tax |
(97,253) |
(158,466) |
(178,253) |
(212,535) |
(215,584) |
(149,307) |
||
Profit After Tax (norm) |
123,148 |
342,718 |
578,270 |
476,805 |
547,135 |
560,028 |
||
Profit After Tax (FRS 3) |
(76,011) |
141,186 |
312,270 |
297,805 |
547,135 |
560,028 |
||
Net loss from discontinued operations |
(4,394) |
0 |
0 |
14,800 |
0 |
0 |
||
Minority interests |
33,126 |
44,719 |
64,486 |
73,162 |
89,538 |
88,053 |
||
Net profit |
(80,405) |
141,186 |
312,270 |
312,605 |
547,135 |
560,028 |
||
Net attrib. to shareholders contg. businesses (norm) |
90,022 |
297,998 |
513,784 |
403,643 |
457,597 |
471,975 |
||
Net attrib.to shareholders contg. businesses |
(109,137) |
96,466 |
247,784 |
224,643 |
457,597 |
471,975 |
||
Average Number of Shares Outstanding (m) |
157.4 |
160.8 |
250.7 |
248.4 |
248.4 |
248.4 |
||
EPS - normalised (c) |
|
|
57.20 |
185.34 |
204.95 |
162.48 |
184.19 |
189.98 |
EPS - normalised fully diluted (c) |
|
|
56.95 |
181.51 |
203.21 |
161.61 |
183.21 |
188.97 |
EPS - (IFRS) ($) |
|
|
(0.72) |
0.60 |
0.99 |
0.96 |
1.84 |
1.90 |
Dividend per share (c) |
0 |
37 |
56 |
62 |
70 |
82 |
||
Gross Margin (%) |
35.0 |
42.5 |
42.3 |
54.1 |
55.1 |
54.9 |
||
EBITDA Margin (%) |
45.4 |
49.3 |
52.3 |
54.1 |
55.1 |
54.9 |
||
Operating Margin (before GW and except.) (%) |
20.7 |
29.6 |
29.6 |
29.9 |
34.2 |
31.5 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
2,330,033 |
5,093,409 |
5,404,900 |
5,315,768 |
5,443,316 |
5,537,796 |
Intangible Assets |
5,498 |
24,851 |
10,000 |
10,000 |
10,000 |
10,000 |
||
Tangible Assets |
2,254,476 |
3,968,746 |
4,980,200 |
4,891,068 |
5,018,616 |
5,113,096 |
||
Investments |
70,059 |
1,099,812 |
414,700 |
414,700 |
414,700 |
414,700 |
||
Current Assets |
|
|
652,871 |
1,168,382 |
1,366,000 |
1,589,917 |
1,768,883 |
2,000,024 |
Stocks |
266,451 |
305,075 |
311,300 |
311,518 |
277,373 |
279,463 |
||
Debtors |
83,836 |
104,545 |
139,900 |
171,656 |
217,482 |
218,856 |
||
Cash |
288,186 |
751,563 |
906,200 |
1,276,943 |
1,444,227 |
1,671,905 |
||
Other |
14,398 |
7,199 |
8,600 |
(170,200) |
(170,200) |
(170,200) |
||
Current Liabilities |
|
|
(354,931) |
(661,171) |
(567,100) |
(629,684) |
(591,931) |
(598,161) |
Creditors |
(312,427) |
(612,862) |
(552,700) |
(615,284) |
(577,531) |
(583,761) |
||
Short term borrowings |
(42,504) |
(48,309) |
(14,400) |
(14,400) |
(14,400) |
(14,400) |
||
Long Term Liabilities |
|
|
(963,736) |
(1,647,799) |
(1,818,100) |
(1,818,100) |
(1,818,100) |
(1,818,100) |
Long term borrowings |
(770,902) |
(1,026,337) |
(878,600) |
(878,600) |
(878,600) |
(878,600) |
||
Other long term liabilities |
(192,834) |
(621,462) |
(939,500) |
(939,500) |
(939,500) |
(939,500) |
||
Net Assets |
|
|
1,664,237 |
3,952,821 |
4,385,700 |
4,457,901 |
4,802,169 |
5,121,559 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
628,617 |
1,046,370 |
1,415,306 |
1,407,784 |
1,173,741 |
1,230,786 |
Net Interest |
(35,413) |
(53,774) |
(26,900) |
(54,019) |
3,839 |
5,512 |
||
Tax |
(109,494) |
(186,332) |
(205,573) |
(201,335) |
(215,584) |
(149,307) |
||
Capex |
(401,227) |
(335,599) |
(587,496) |
(512,979) |
(591,844) |
(618,678) |
||
Acquisitions/disposals |
3,654 |
(19,000) |
(4,700) |
15,000 |
5,000 |
0 |
||
Financing |
2,402 |
100,000 |
(89,400) |
(83,773) |
0 |
0 |
||
Dividends |
(6,154) |
(88,288) |
(159,800) |
(199,934) |
(207,867) |
(240,637) |
||
Net Cash Flow |
82,385 |
463,377 |
341,437 |
370,743 |
167,284 |
227,677 |
||
Opening net debt/(cash) |
|
|
518,607 |
525,220 |
323,083 |
(13,200) |
(383,943) |
(551,227) |
Other |
(88,998) |
(261,240) |
(5,154) |
0 |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
525,220 |
323,083 |
(13,200) |
(383,943) |
(551,227) |
(778,905) |
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.
|
|
Research: Industrials
Jersey Electricity (JEL) has consistently delivered a 5% increase in its DPS, which we expect to continue. Its cautious approach to financial risks means its wholesale electricity market-based exposure is materially hedged until FY25, which helps maintain relative price stability for its customers. It has a strong balance sheet, with cash of £43.1m, and its grid infrastructure is well invested. Electrification of Jersey’s heating and transport systems to achieve the government’s net zero ambitions provides an opportunity for growth. Based on our detailed modelling and the government of Jersey’s (GoJ’s) consultation draft of the Carbon Neutral Roadmap, we estimate full electrification of these two areas could increase electricity demand by 454GWh pa (454m units of electricity), representing a 71% increase on the 639m units sold by JEL in FY21.
Get access to the very latest content matched to your personal investment style.