At this point, it’s not quite clear what Kenmare Resources (KMR) has to do to win over investors. Full-year results from the titanium minerals group showed a 121 per cent increase in net cash flow from operations, a swing to net cash and record shipments from the Moma mine in Mozambique.
What’s more, plans to expand the production are under way and under budget, a dividend is due later this year and the price environment for ilmenite and zircon remains robust. And yet shares in the group once again dipped on the publication of 2018 results, meaning they now trade at a 65 per cent discount to net assets.
Management has two plans to redress this. The first is a capital return, which shareholders can expect with interim results in October. The second is a programme to expand Moma’s production capacity by 20 per cent by 2021. This will cost $145m (£111m) over the next two years, but should increase ore grades and efficiency, thereby reducing unit costs.
This looks affordable, assuming the “modest softening” in zircon prices at the end of 2018 does not worsen. Even after investing $39.8m in mine improvements and retiring $19m of debt, Kenmare generated $28.1m of free cash last year.
Canaccord Genuity expects adjusted pre-tax profits of $64m and earnings of 53.5¢ this year, rising to $76m and 64.1¢ in 2020.
| KENMARE RESOURCES (KMR) | ||||
| ORD PRICE: | 205p | MARKET VALUE: | £225m | |
| TOUCH: | 204-205p | 12-MONTH HIGH: | 264p | LOW: 182p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 6 | |
| NET ASSET VALUE: | 774¢ | NET CASH: | $13.5m | |
| Year to 31 Dec | Turnover ($m) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (¢) |
| 2014 | 174 | -101 | -362 | nil |
| 2015 | 143 | -61.9 | -218 | nil |
| 2016 | 141 | -17.1 | -28.0 | nil |
| 2017 | 208 | 18.4 | 18.0 | nil |
| 2018 | 262 | 56.1 | 46.0 | nil |
| % change | +26 | +204 | +156 | - |
| Ex-div: | n/a | |||
| Payment: | n/a | |||
| £1=$1.31. | ||||
