Central Asia Metals#: 2020 Full Year Results
Earnings Exceed Expectations
Central Asia Metals (LON:CAML) 2020A full year results came in ahead of expectations, putting a challenging but profitable year behind the company. Net revenue of US$160m was down 7% YoY owing to weaker commodity prices but 3% ahead of our forecast, while EBITDA of US$96m was down 11% YoY, but 8% ahead of forecasts combining the impact of the top line with strong cost control and a less severe impact than expected from the Sasa disruption. Net income of US$44m was in line with our forecast. However, levered free cash flow of US$59m was down 16% YoY while deleveraging continued on-target with year-end net debt of US$36m.
Surprise Dividend Hike
Although commodity prices were weak in H1 2020, China’s recovery meant that prices recovered rapidly. The copper price is up 43% since the start of 2020 as Chinese users have sought to restock depleted inventories. Consequently, H2 2020 earnings performance gave the Board confidence to announce an 8p/sh. interim dividend leading to a full year dividend of 14p/sh. well ahead of our 10p forecast. The payout was outside of the upper end of the policy range of 30-50% of levered FCF, however, in the wider context of 2020 and the earlier caution which gave the company flexibility, in our view, this move is justified and welcome. With strong commodity prices persisting into 2021F, we expect around 60% of earnings to be derived from copper, a 21% YoY increase in levered FCF to US$71m and the potential for higher pay-outs, which imply a forward yield of c6%. In the current environment, this can be comfortably accommodated along with the Sasa mining method transition and further deleveraging, with the company likely to turn to a net cash position this year
Recommendation and Target Price
Management’s navigation of COVID-19 and swift and effective response to the Sasa disruption minimised the impact on earnings driving 16% outperformance against the MSCI Metals & Mining index since the start of 2020. With a strong balance sheet, strengthening earnings outlook and supportive macro backdrop the company is now well placed to resume its growth strategy.
We reiterate our Buy recommendation increasing our target price to 325p which implies 29% upside and 35% on a total return basis.
Oliver O’Donnell, CFA, Natural Resources Analyst | T: +44 (0)20 3617 5180 | E: [email protected]
VSA Capital Limited, New Liverpool House, 15-17 Eldon Street, London EC2M 7LD | www.vsacapital.com
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