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Research: Metals & Mining
Wheaton’s (WPM’s) Q123 results are scheduled for 4 May. Ahead of their release, we have refined our forecasts to reflect, principally, a hiatus in mining the high-grade Pampacancha pit at Constancia, owing to regional road blockades (announced by Hudbay, on 30 March) and the suspension of production from the lower levels of the Stillwater West mine by Sibanye-Stillwater for around four weeks, following damage to shaft infrastructure during non-routine maintenance (announced on 13 March). We have also updated our estimates for actual cf forecast, precious metals prices.
Wheaton Precious Metals |
Refining forecasts |
Q123 results preview |
Metals and mining |
20 April 2023 |
Share price performance
Business description
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Analyst
Wheaton Precious Metals is a research client of Edison Investment Research Limited |
Wheaton’s (WPM’s) Q123 results are scheduled for 4 May. Ahead of their release, we have refined our forecasts to reflect, principally, a hiatus in mining the high-grade Pampacancha pit at Constancia, owing to regional road blockades (announced by Hudbay, on 30 March) and the suspension of production from the lower levels of the Stillwater West mine by Sibanye-Stillwater for around four weeks, following damage to shaft infrastructure during non-routine maintenance (announced on 13 March). We have also updated our estimates for actual cf forecast, precious metals prices.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
1,201.7 |
592.1 |
132 |
57 |
38.4 |
1.1 |
12/22 |
1,065.1 |
497.7 |
112 |
60 |
45.3 |
1.2 |
12/23e |
1,142.9 |
576.5 |
131 |
60 |
38.8 |
1.2 |
12/24e |
1,364.0 |
632.1 |
140 |
62 |
36.3 |
1.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Temporary production disruptions
Production from the Stillwater West mine (below 50 level) will be suspended until remediation is complete, resulting in c 25–30k fewer ounces of palladium and platinum production for the year. Access to the upper levels of the Stillwater West mine (above 50 level) and the Stillwater East mine have been unaffected, as have operations at East Boulder. In the meantime, mining of higher-grade ore at Pampacancha is now expected in Q223. Note: we have left our forecasts for Salobo unchanged after Vale’s Q1 production and sales report released on 18 April.
Precious metals prices continue to rise
In addition to our production refinements, we now assume that gold will remain at US$2,006/oz for the remainder of the year (cf US$1,868/oz previously), silver will remain at US$25.19/oz (cf 21.54/oz), palladium will remain at US$1,635/oz (cf US$1,462/oz) and cobalt will remain at US$15.84/lb (cf US$15.50/lb). As a consequence of our refinements, we have reduced our EPS forecast for Q123 by 6.3%, but increased it for FY23 by 13.9%.
Valuation: Cheaper than its peers 69% of the time
Using a capital asset pricing model (CAPM)-type method, whereby we discount cash flows at a nominal 9.0% per year, our ‘terminal’ valuation of WPM in FY26 is little changed at US$53.37 (C$71.40) per share, assuming zero subsequent long-term 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$54.58, or C$73.02 or £43.83 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 69% of common valuation measures if Edison forecasts are used or 61% if consensus forecasts are used. If WPM’s shares were instead to trade at the average level of its peers, we calculate that its FY23 share value would be US$56.60, or C$75.73 or £45.45 (based on Edison forecasts).
Q123 and FY23 forecast update
In the light of our refinements, we have updated our FY23 quarterly forecasts for WPM as follows:
Exhibit 1: WPM FY23 forecast, by quarter*
US$000s |
Q123e |
Q123e |
Q223e |
Q2233 |
Q323e |
Q323e |
Q423e |
Q423e |
FY23e |
FY23 |
Silver production (koz) |
5,000 |
4,723 |
5,000 |
4,723 |
5,000 |
4,723 |
5,000 |
4,723 |
18,894 |
20.000 |
Gold production (oz) |
69,371 |
66.014 |
85,746 |
85,746 |
87,149 |
87,149 |
97,005 |
97,005 |
335,914 |
339,271 |
Palladium production (koz) |
3,871 |
3,276 |
3,871 |
3,514 |
3,871 |
3,871 |
3,871 |
3,871 |
14,532 |
15,484 |
Cobalt production (klb) |
113 |
113 |
201 |
201 |
289 |
204 |
377 |
204 |
721 |
980 |
Silver sales (koz) |
4,409 |
4,165 |
5,000 |
4,723 |
5,000 |
4,723 |
5,000 |
4,723 |
18,336 |
19,409 |
Gold sales (oz) |
64,824 |
61,687 |
85,725 |
85,725 |
87,128 |
87,128 |
96,984 |
96,984 |
331,524 |
334,661 |
Palladium sales (oz) |
3,298 |
2,791 |
3,856 |
3,500 |
3,856 |
3,856 |
3,856 |
3,856 |
14,002 |
14,865 |
Cobalt sales (klb) |
104 |
104 |
201 |
201 |
289 |
204 |
377 |
204 |
712 |
971 |
Avg realised Ag price (US$/oz) |
22.28 |
22.55 |
21.54 |
25.16 |
21.54 |
25.19 |
21.54 |
25.19 |
24.58 |
21.71 |
Avg realised Au price (US$/oz) |
1,872 |
1,891 |
1,868 |
2,006 |
1,868 |
2,006 |
1,868 |
2,006 |
1,985 |
1,869 |
Avg realised Pd price (US$/oz) |
1,574 |
1,567 |
1,462 |
1,606 |
1,462 |
1,635 |
1,462 |
1,635 |
1,614 |
1,487 |
Avg realised Co price (US$/lb) |
18.22 |
18.16 |
15.50 |
15.84 |
15.50 |
15.84 |
15.50 |
15.84 |
16.18 |
15.79 |
Avg Ag cash cost (US$/oz) |
4.97 |
5.00 |
4.93 |
5.12 |
4.93 |
5.12 |
4.94 |
5.13 |
5.10 |
4.94 |
Avg Au cash cost (US$/oz) |
469 |
472 |
459 |
463 |
458 |
461 |
454 |
457 |
462 |
459 |
Avg Pd cash cost (US$/oz) |
283 |
282 |
263 |
289 |
263 |
294 |
263 |
294 |
291 |
268 |
Avg Co cash cost (US$/lb) |
3.28 |
3.27 |
2.79 |
2.85 |
2.79 |
2.85 |
2.79 |
2.85 |
2.91 |
2.84 |
Sales |
226,672 |
216,843 |
276,584 |
299,664 |
280,571 |
303,291 |
300,349 |
323,062 |
1,142,859 |
1,084,176 |
Cost of sales |
||||||||||
Cost of sales, excluding depletion |
53,570 |
51,109 |
65,617 |
65,404 |
66,400 |
66,086 |
70,800 |
70,248 |
252,847 |
256,387 |
Depletion |
48,861 |
46,087 |
61,719 |
59,625 |
64,070 |
60,945 |
70,216 |
65,882 |
232,538 |
244,865 |
Total cost of sales |
102,430 |
97,196 |
127,336 |
125,029 |
130,470 |
127,031 |
141,016 |
136,130 |
485,386 |
501,253 |
Earnings from operations |
124,242 |
119,647 |
149,248 |
174,635 |
150,101 |
176,260 |
159,333 |
186,931 |
657,474 |
582,924 |
Expenses and other income |
||||||||||
– General and administrative** |
19,363 |
21,557 |
17,488 |
18,627 |
17,488 |
17,488 |
17,488 |
17,488 |
75,159 |
71,825 |
– Foreign exchange (gain)/loss |
0 |
0 |
||||||||
– Net interest paid/(received) |
1,454 |
1,454 |
1,454 |
1,454 |
1,454 |
1,454 |
1,454 |
1,454 |
5,817 |
5,817 |
– Other (income)/expense |
(5,492) |
-5,492 |
(4,756) |
-4,676 |
(3,255) |
-3,347 |
(2,305) |
-2,575 |
-16,090 |
(15,808) |
Total expenses and other income |
15,325 |
17,520 |
14,186 |
15,405 |
15,686 |
15,595 |
16,637 |
16,366 |
64,886 |
61,834 |
Earnings before income taxes |
108,917 |
102,128 |
135,062 |
159,230 |
134,415 |
160,665 |
142,696 |
170,565 |
592,588 |
521,089 |
Income tax expense/(recovery) |
250 |
250 |
250 |
250 |
250 |
250 |
250 |
250 |
1,000 |
1,000 |
Marginal tax rate (%) |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
0.1 |
0.2 |
0.2 |
Net earnings |
108,667 |
101,878 |
134,812 |
158,980 |
134,165 |
160,415 |
142,446 |
170,315 |
591,588 |
520,089 |
Average no. shares in issue (000s) |
452,319 |
452,319 |
452,319 |
452,319 |
452,319 |
452,319 |
452,319 |
452,319 |
452,319 |
452,319 |
Basic EPS (US$) |
0.240 |
0.225 |
0.298 |
0.351 |
0.297 |
0.355 |
0.315 |
0.377 |
1.31 |
1.15 |
Diluted EPS (US$) |
0.239 |
0.224 |
0.297 |
0.350 |
0.295 |
0.353 |
0.314 |
0.375 |
1.30 |
1.15 |
DPS (US$) |
0.15 |
0.15 |
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. **Forecasts now include stock-based compensation costs. Totals may not add up owing to rounding.
Our updated basic EPS forecast of US$1.31/share for FY23 compares with the consensus as follows:
Exhibit 2: WPM FY23 consensus EPS forecasts (US$/share), by quarter
Q123e |
Q223e |
Q323e |
Q423e |
Sum Q1–Q423e |
FY23e |
|
Edison forecasts |
0.225 |
0.351 |
0.355 |
0.377 |
1.308 |
1.31 |
Mean consensus |
0.28 |
0.29 |
0.31 |
0.32 |
1.20 |
1.18 |
High consensus |
0.33 |
0.37 |
0.39 |
0.39 |
1.48 |
1.48 |
Low consensus |
0.23 |
0.21 |
0.25 |
0.25 |
0.94 |
0.91 |
Source: Refinitiv, Edison Investment Research. Note: As at 18 April 2023.
Exhibit 3: Financial summary
$000s |
|
2020 |
2021 |
2022 |
2023e |
2024e |
2025e |
|
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
1,096,224 |
1,201,665 |
1,065,053 |
1,142,859 |
1,363,969 |
1,561,629 |
Cost of Sales |
(266,763) |
(287,947) |
(267,621) |
(252,847) |
(315,558) |
(355,375) |
||
Gross Profit |
829,461 |
913,718 |
797,432 |
890,012 |
1,048,411 |
1,206,254 |
||
EBITDA |
|
|
763,763 |
852,733 |
735,245 |
814,853 |
973,252 |
1,131,095 |
Operating profit (before amort. and excepts.) |
|
|
519,874 |
597,940 |
503,293 |
582,315 |
631,669 |
778,602 |
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
4,469 |
162,806 |
164,214 |
0 |
0 |
0 |
||
Other |
387 |
190 |
7,680 |
16,090 |
0 |
0 |
||
Operating Profit |
524,730 |
760,936 |
675,187 |
598,405 |
631,669 |
778,602 |
||
Net Interest |
(16,715) |
(5,817) |
(5,586) |
(5,817) |
463 |
505 |
||
Profit Before Tax (norm) |
|
|
503,159 |
592,123 |
497,707 |
576,498 |
632,132 |
779,107 |
Profit Before Tax (FRS 3) |
|
|
508,015 |
755,119 |
669,601 |
592,588 |
632,132 |
779,107 |
Tax |
(211) |
(234) |
(475) |
(1,000) |
(1,000) |
(1,000) |
||
Profit After Tax (norm) |
503,335 |
592,079 |
504,912 |
591,588 |
631,132 |
778,107 |
||
Profit After Tax (FRS 3) |
507,804 |
754,885 |
669,126 |
591,588 |
631,132 |
778,107 |
||
Average Number of Shares Outstanding (m) |
448.7 |
450.1 |
451.6 |
452.3 |
452.3 |
452.3 |
||
EPS - normalised (c) |
|
|
112 |
132 |
112 |
131 |
140 |
172 |
EPS - normalised and fully diluted (c) |
|
|
112 |
131 |
112 |
130 |
139 |
171 |
EPS - (IFRS) (c) |
|
|
113 |
168 |
148 |
131 |
140 |
172 |
Dividend per share (c) |
42 |
57 |
60 |
60 |
62 |
72 |
||
Gross Margin (%) |
75.7 |
76.0 |
74.9 |
77.9 |
76.9 |
77.2 |
||
EBITDA Margin (%) |
69.7 |
71.0 |
69.0 |
71.3 |
71.4 |
72.4 |
||
Operating Margin (before GW and except.) (%) |
47.4 |
49.8 |
47.3 |
51.0 |
46.3 |
49.9 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
5,755,441 |
6,046,427 |
6,039,813 |
6,811,241 |
7,138,780 |
6,793,087 |
Intangible Assets |
5,521,632 |
5,940,538 |
5,753,111 |
6,524,539 |
6,852,078 |
6,506,385 |
||
Tangible Assets |
33,931 |
44,412 |
30,607 |
30,607 |
30,607 |
30,607 |
||
Investments |
199,878 |
61,477 |
256,095 |
256,095 |
256,095 |
256,095 |
||
Current Assets |
|
|
201,831 |
249,724 |
720,093 |
268,415 |
292,962 |
1,091,155 |
Stocks |
3,265 |
12,102 |
13,817 |
2,689 |
3,209 |
3,674 |
||
Debtors |
5,883 |
11,577 |
10,187 |
6,262 |
7,474 |
8,557 |
||
Cash |
192,683 |
226,045 |
696,089 |
259,464 |
282,279 |
1,078,924 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
|
|
(31,169) |
(29,691) |
(30,717) |
(30,270) |
(33,276) |
(35,186) |
Creditors |
(30,396) |
(28,878) |
(29,899) |
(29,452) |
(32,458) |
(34,368) |
||
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 |
7,037,872 |
7,386,951 |
7,837,543 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
784,843 |
851,686 |
749,429 |
845,549 |
974,526 |
1,131,456 |
Net Interest |
(16,715) |
(5,817) |
(5,586) |
(5,817) |
463 |
505 |
||
Tax |
(2,686) |
(503) |
34 |
(1,000) |
(1,000) |
(1,000) |
||
Capex |
149,648 |
(404,437) |
(44,750) |
(1,003,966) |
(669,122) |
(6,800) |
||
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) |
(271,391) |
(282,053) |
(327,515) |
||
Net Cash Flow |
770,274 |
230,869 |
472,201 |
(436,625) |
22,815 |
796,645 |
||
Opening net debt/(cash) |
|
|
774,766 |
5,954 |
(223,172) |
(694,119) |
(257,494) |
(280,309) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(1,462) |
(1,743) |
(1,254) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
5,954 |
(223,172) |
(694,119) |
(257,494) |
(280,309) |
(1,076,954) |
Source: Company sources, Edison Investment Research.
|
|
Research: TMT
With Q423 trading slightly better than expected, discoverIE is on track to deliver FY23 underlying earnings ahead of board expectations. The year-end order book was also higher than anticipated due to stronger than expected order intake in Q423, providing good visibility for FY24. We have upgraded our underlying EPS forecasts for FY23 and FY24 and reduced our net debt forecasts over the same period.
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