Venture: Portfolio Update
Issue 39;
This week, Centamin (CEY) was bid for with an agreed price within a few percent of the analysts’ forecast price. Some people have suggested that analysts’ forecasts are worthless. To that, I would say all three of Venture’s takeover bids over the past year have been within a few percent of the analysts’ price target. I would agree they aren’t as useful in growth stocks, where they are chasing upgrades, but with value, no bid is likely to succeed unless it is close to their target price. This makes it a very useful guide for value investors.
Last month in the Venture Review, I covered Thyssenkrupp (TKA), Digital Value (DGV), IP Group (IPO), Mobico (MCG) and B2GOLD (BTO). The first two require more time, TKA possibly lots more, but the last three have all turned up.
In this update, I will cover results for Hochschild (HOC), Diversified Energy (DEC), Costain (COST), Plus500 (PLUS), SigmaRoc (SRC), Gamma Communications (GAMA), James Fisher FSJ, B2GOLD (BTO), and Torex (TXG).
Hochschild Mining (HOC) saw revenue rise by 25% to $392m (H1 $314m), while net income flipped from loss to profit. This was driven by an increase in gold production from 137k to 153k ounces of gold equivalent (Au Eq Oz). Meanwhile, they reduced the all-in sustaining cost of production by around 4%, which drove the positive turnaround in net profits. This was all underpinned by the start of commercial production at the Mara Rosa mine in Brazil. CEO said,
“We are delighted to have brought Mara Rosa into commercial production, an asset which underpins our strategy of increasing production and lowering costs.”
Hochschild and Gold Stocks
Diversified Energy (DEC) had interim results. Profits were reduced to near zero as gas prices fell, but their hedging policy saw gains on derivatives for natural gas increasing by $30m to $86m, a 54% increase. However, this merely covered the $120m decline in commodity revenues across oil gas and NGLs (liquid natural gas).
Total sales volumes were down 12%, partly driven by the sale of a subsidiary, and sales prices were down 16%. Gas is c. 85% of sales. The hedges reduced the sales price decline to just 8%, so it could have been worse. Around 75% of production is hedged over the next 12 months as per company policy.
The dividend yield now stands at 10.5%, meaning we are getting any upside on natural gas prices plus 10% per year. Natural gas is one of the cheapest commodities relative to gold over a thirty-year period, and sentiment has driven it lower following an extreme post-covid price crash. The set-up is there, winter is approaching, and DEC is the way to play it. It is encouraging to see gas prices attempting another uptrend.
Natural Gas ByteTrend Score 4/5
Costain (COST) first half results saw revenues fall slightly (£639m from £664m) as the transportation segment fell, partially offset by growth in the natural resources segment. However, adjusted earnings grew by 27%. I use adjusted figures here as they are lower than reported, suggesting conservative accounting choices on the part of management. It reiterated its growth and margin targets for FY 2024. Future contract growth was especially strong during this period, and a new buyback program was launched.
On Wednesday, ASGC Construction placed its 15% stake at a discount, but the share price took it well. COST is close to the analysts’ fair value, but the trend is strong.
Costain ByteTrend Score 5/5
Plus500 (PLUS) H1 2024 results saw revenues grow 8% to $398m, driven by stronger customer acquisition (new customers up 13%) and increased trading activity. Earnings per share grew 18%, and the cash position surpassed $1bn for the first time. This feeds into a generous dividend and buyback policy as the company is focused on shareholder returns. Again, this is close to target with a ByteTrend score of 5/5.
Plus500 ByteTrend Score 5/5
SigmaRoc (SRC) H1 2024 results saw strong revenue growth, up 60%. Things then get a little complex, as adjusted earnings fell by 20%, but free cash flow generation went from near-zero to £43m. This is partly clouded by its acquisitive business model. It bought a larger rival, a division of CRH, during the period, which makes year-on-year comparisons tricky. Looking at underlying revenues, these were actually down 8%, but earnings only fell by 3% in this comparison. The free cash generation is strong and forecast to be £105 million for next year, putting it on a 15% free cashflow yield.
Gamma Communications plc (GAMA) H1 2024 results saw revenues grow 10% year-on-year and, in a good sign, all related financial metrics grew by about the same amount, suggesting a well-organised operation. Gross profits grew by 11% and earnings were up by 9%. Growth came from across the business, and recurring revenues were once again around 90% of the total. These are all signs that growth is based on solid foundations. Cash generation was good, and the management is optimistic about the rest of the year.
James Fisher (FSJ) H1 2024 results saw revenues fall by 12% as the energy division dragged things down by 18%. However, operating profits, including gains from subsidiary sales, were up 20% as management spun off non-core divisions to stabilise and simplify the business. However, net earnings fell by 70%. FSJ is in the midst of a turnaround, so despite these gloomy figures, the shares are up 40% over the past six months, suggesting that markets are supportive of management actions.
B2Gold (BTO) H1 2024 results saw gold production volumes challenged by an extended shutdown at the Fekola mine due to equipment failures. This forced them to lower full-year production guidance. What’s more, costs at its Calibre mine are going to be slightly higher than expected. However, they see overall operating costs staying low. Higher gold prices still managed to marginally lift revenues from $954m to $944m, but net income fell sharply from $194m to $14m. This all held the stock back from much of August until gold’s breakout performance in the last few days gave it another boost.
Torex Gold (TXG) H1 2024 results saw revenues rise from $440m to $507m. However, higher costs and deferred taxes meant that net income fell by almost 70%, down to $45m. Looking at earnings from mine operations, which strips out more accounting items, these rose from $165m to $183m, giving a better picture of underlying business performance. As does adjusted net income, which rose from $36m to $52m. It is also worth noting with sadness that a 40-year-old contractor lost his life doing tunnel work at their Morelos mine. These incidents are thankfully much rarer than they used to be but are still a real risk for employees in the mining industry. It will hang over the company for some time.
Summary
Some stocks are close to their target, but I intend to run the winners until targets are met or the trend or outlook deteriorates. I am focused on gold and related stocks, which is where there is movement, so don’t be surprised to see more of those.
Please let me know your thoughts by emailing me at venture@bytetree.com or tweeting me @AtlasPulse.
Many thanks,
Charlie Morris
Editor, Venture
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