Kenmare Resources plc (LON:KMR) was the topic of conversation when Darren Turgel MD at DirectorsTalk caught up with Colin Grant, Davy Research Analyst to discuss H1 results. Darren asked:
Kenmare Resources has now reported its H1 2022 results, what were the key points investors should take away?
Volumes and shipments in H1 2022 were impacted by bad weather and maintenance work on the Bronagh J transhipment vessel. These were previously disclosed and are temporary issues. Despite these headwinds the EBITDA margin expanded 890bps year on year to a record high of 57.9% driven by strength in pricing and cost management. Ilmenite prices increased 36% year on year and primary zircon prices increased 52% year on year.
How do you see the outlook for Kenmare?
Production volumes have been strong in the last few months so the company expects to achieve the lower end of its previous FY2022 volume guidance. That is positive. And there is the potential to catch up some of the shortfall in shipments in H1 during H2 as shipping capacity comes back on stream. Pricing trends continue to be positive into Q3 so results could be very strong in H2 2022. Macro risks are growing, mainly due to tightening monetary policies and the broader impact of inflation on economies, and this could have an impact on global asset markets later this year and during 2023. Commodity related assets with strong balance sheets and high margins like Kenmare are best positioned for this period.
How do you see the the company in terms of fair value?
The company has invested over $1.5bn in its mining assets. And pricing trends are now far higher than when most of its investments were made so the fair value of Kenmare is now far above $1.5bn and is almost certainly above $2.5bn. This is a multiple of the market cap. The EV of Kenmare (market cap plus net debt) is now only 0.7% of the value of the company’s ilmenite reserves and resources. This is a fraction of its historic valuation. We expect the stock to see a significant positive re-rating during the next upcycle.
Kenmare Resources is a producer of titanium minerals. Its products are essential in the manufacture of paint, paper and plastic, in addition to titanium metal.
