Shares of Highland Gold Mining (LSE: HGM) are trading modestly lower at around 160p having seen a decent run-up in advance of today’s half-year results. This well-established Russia-focused miner said it had delivered “a solid operational performance” during the period and is “well placed” to meet its production guidance of 255,000 to 265,000 ounces for the full year.
Gold-star prospect
Highland’s first-half production of 131,784 ounces, revenue of £147m and average gold price realised of $1,238 per ounce were all slightly ahead of the same period last year. EBITDA was 8% lower (as expected), mainly due to a stronger rouble, higher production costs and utilisation of low-grade ore at its Belaya Gora operation.
Despite the lower EBITDA margin — 50% from 54% — it remains within range of the most efficient gold miners. And total cash costs, which increased 15% to $509 per ounce, are still well below the industry median. Period-end net debt of $204m is reasonable for a company with a market cap of £520m ($670m) and a running net debt-to-EBITDA ratio of 1.3.
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Highland’s operating efficiency and affordable borrowing costs mean there’s plenty of cash flow for both investment (it said today it’s seeing “substantial progress in each of the projects targeted for the company’s future growth”) and dividends for shareholders.
The City’s earnings-per-share (EPS) consensus for the current year is for a rise from last year’s 14.5 cents to 18.5 cents (14.3p), giving an undemanding price-to-earnings (P/E) ratio of 11.2 and a price-to-earnings growth (PEG) ratio of 0.4, which is deeply on the value side of the PEG fair-value marker of one. With the company also forecast to pay a dividend of 11.5 cents (8.9p), giving a gold-star 5.6% yield, I rate the stock a ‘buy’.
Substantially undervalued
The board of oil-palm plantations group MP Evans (LSE: MPE) rejected a 640p-a-share offer from Malaysian conglomerate Kuala Lumpur Kepong Berhad last October. And with the “immediate and unequivocal support” of major shareholders, also unanimously rejected an improved offer of 740p. The board said it “continues to believe that the revised offer very substantially undervalues the company, its unique position and its future growth potential.”
The shares are currently trading at 735p, giving a market cap of £405m ($522m). Like the board, I believe this very substantially undervalues the company. It commissioned an independent valuation of its assets at the time of the takeover bid, which gave a valuation of $665m, implying an equity value of 1,082p a share.
In addition to a still-cheap asset valuation, the earnings-growth rating of MP Evans is also attractive. The City’s EPS consensus for the current year is 29 cents (22.5p), rising to 42 cents (32.5p) next year, giving a P/E of 32.7, falling to 22.6, and a great-value PEG of 0.5. The board intends to pay an ordinary dividend of at least 15 cents (11.6p) for the current year, giving a yield of 1.6%. And while this could be bumped up by a special dividend, it’s the company’s cheap asset valuation and PEG rating that leads me to rate the stock a ‘buy’.
