On Thursday, Canaccord Genuity began its coverage on Fresnillo Plc (LON:FRES:LN) (OTC: FNLPF (OTC:FNLPF)) stock, a precious metals mining company, with a Buy rating and a price target set at 680 pence (GBP6.80).
The firm's analysis predicts a significant profit increase for Fresnillo, extending through at least 2026, due to stronger precious metals price forecasts.
The firm forecasts that Fresnillo will generate an additional $500-700 million in revenue each year over the next three years, compared to the $2.7 billion reported for 2023. This revenue surge is expected to translate into a considerable boost in operating cash flow, potentially leading to a period of positive free cash flow for the company.
Canaccord Genuity's forecast also indicates a notable average unit cost inflation of 34% across Fresnillo's group mines, excluding Juanicipio, from 2022 to 2024. When excluding Cienega as well, the inflation forecast drops to 23%.
Despite these inflationary pressures, the firm notes that cost containment measures have been implemented across group assets as of the end of 2023. These measures are anticipated to mitigate further inflationary profit erosion by the second half of 2024.
The analyst from Canaccord Genuity expressed optimism about the company's financial prospects, stating, "With our refreshed 3Q24 commodity price deck providing even stronger precious metals price forecasts for the coming three years, we forecast Fresnillo to have a substantial profit rebound through at least 2026." The firm emphasizes the importance of cost containment in the coming years and expresses hope that the measures already in place will help contain further profit erosion.
With a 25% potential upside to the set target price, Canaccord Genuity's initiation of coverage on Fresnillo with a Buy rating reflects a positive outlook for the company's stock performance in the near future.
In other recent news, Fresnillo PLC, the world's largest silver producer, announced solid interim results during its latest earnings call. The company reported increased profits and maintained a robust balance sheet, despite operational challenges at the Fresnillo mine and weather-related setbacks at Herradura. The company's financial strength is underpinned by strong industrial demand for silver and gold's status as a safe asset.
Fresnillo PLC reaffirmed its commitment to safety, environmental sustainability, and community relations while advancing various mining projects and exploration efforts. The company remains on target to meet its annual production guidance for silver and gold.
Furthermore, Fresnillo PLC is optimistic about the future of open pit mining in Mexico, despite potential legislative challenges. They are also exploring M&A opportunities to replace depleted resources and add growth.
The company has set a goal to increase renewable energy usage to 75% by 2030, with administrative processes being the main hurdle to reaching 100%. These are some of the recent developments for Fresnillo PLC.
InvestingPro Insights
As Canaccord Genuity initiates coverage on Fresnillo Plc with a promising outlook, real-time data from InvestingPro further enriches the narrative for potential investors. Fresnillo's market capitalization stands at $4.94 billion, and it currently trades at a P/E ratio of 20, which is slightly reduced to 19.23 when looking at the last twelve months as of Q2 2024. This valuation comes in context with a robust revenue growth of 13.22% over the same period, underscoring the company's expansion in a challenging economic environment.
InvestingPro Tips highlight that Fresnillo's stock has experienced a significant downturn over the past week with a price total return of -9.15%, yet the company has managed to maintain dividend payments for 17 consecutive years, showcasing its commitment to shareholder returns. Additionally, Fresnillo operates with a moderate level of debt and has liquid assets that exceed its short-term obligations, suggesting a solid financial position for weathering short-term market fluctuations.
Analyzing these metrics, along with the 25% potential upside to Canaccord Genuity's target price, investors may find Fresnillo an intriguing option. For those seeking further guidance, additional InvestingPro Tips for Fresnillo are available, providing deeper insights into the company's financial health and market potential.
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