A NEW GROWTH SCENARIO FOR 2020E
An expected decline in activity, following the correction in Lead prices
During H1-20. CMT’s revenue reported a decline of -24.4% at MAD 189.5 Mn. This largely ex-pected evolution is explained by two factors. On the one hand, the 12.0% drop in Lead sales prices. On the other hand, the 8.0% decrease in production following disruptions induced by the Covid-19 pandemic (Cf. Covid-19: Glimmers of hope at the end of the tunnel).
The NIGS shows a sharp decrease of -54.4% at MAD 41.6 Mn over the same period. This results from the decline of the operating margin by -14.4 pts to 37.6% and the recognition of a non-recurrent expense of MAD 10 Mn related to the contribution to the Covid-19 fund.
A better than expected second-half…, thanks to Silver activity
While base metals were penalized by a weakening global industrial Demand following the Covid-19 crisis, Silver experienced a bullish trend. Taking profit from its status as a “safe haven”, thismetal posted a performance of 64.7% since April 2020, from 14.0 $/Oz to 23.0 $/Oz at the end ofSeptember 2020.
The sustainability of such a price level for Silver would enable a significant recovery in CMT’srevenue during the second-half of the year. This is a price effect of 42.1% (i.e. an average priceof 24.4 $/Oz in H2-20 against 17.2 $/Oz in H2-19). Recall that the contribution of the Silver activity to revenue would, according to our estimates, settle at 35.0% in 2020E.
- An upward revision of our target price to MAD 1,390*
Taking into account the strong recovery in the Silver price in H2-20 as well as the target contri-bution of this metal to CMT’s revenue, we revised our growth forecasts for 2020 :
- The operator’s consolidated revenue would amount to MAD 493 Mn against MAD 442 Mn originally expected, i.e. a decrease of -5.4% versus -13.4% previously ;
- The NIGS would show a decline of -19.4% against -32.0% initially forecasted thanks to a positive margin effect of Silver. i.e. MAD 169 Mn versus MAD 125 Mn previously.
By readjusting our growth assumptions and on the basis of a 9.1% discount rate, our target price comes out at MAD 1.390. In the end, we recommend HOLDING the stock CMT thanks to its ability to return to an attractive dividend yield of 6.0% by 2020.
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