British American Tobacco PLC

BTI Details

British American Tobacco PLC (NYSE: BTI) is a British multinational business that manufactures and distributes cigarettes, tobacco, and other nicotine-containing goods. The company's top brands include Dunhill, Kent, Lucky Strike, Pall Mall, and Rothmans Neo, Vuse, Newport, Camel, and Natural American Spirit. In addition, vapor, tobacco heating products (THP), contemporary oral products, snus, and moist snuff are other potentially risk-reduced goods (PRRP). As of October 21, 2021, BTI's market capitalization stood at USD 82.44 billion, with 2.29 billion American Depository Shares (ADS) listed and outstanding (each ADS representing one ordinary share).

Latest News:

• Carbon Reduction Goal: British American Tobacco (BAT), the Parent company of BTI, stated on October 15, 2021, that it had joined the UN-backed Race to Zero initiative, pledging to achieve net-zero emissions by 2050. In addition, BAT reduced emissions from its activities by 30.9% in FY20 alone, adding to a total decrease of 37.4% to a 2017 baseline.

• Regulatory Clearance: On October 13, 2021, the business announced that it had received first-of-its-kind marketing authorization from the US Food and Drug Administration (FDA) for Vuse Solo, a crucial brand, allowing it to sell Vuse Solo product in its original flavor.

H1FY21 Results:

• Slight decline in Revenues: The company reported a slight decrease of 0.78% in total revenues to GBP 12.17 billion during H1FY21 (ended June 30, 2021) compared to GBP 12.27 billion during H1FY20.
• Slight decline in Net Income: BTI reported a decrease in net income to GBP 3.33 billion during H1FY21 vs. GBP 3.54 billion during H1FY20.
• Cash Position: As of June 30, 2021, its cash and cash equivalents (including marketable investments) were GBP 3.35 billion, with a total debt of GBP 45.01 billion.

Key Risks: The tobacco industry is tightly regulated globally, with manufacturers required to comply with various regulatory regimes all around the globe. These constraints may hinder BTI's capacity to market its products, jeopardizing its business and financial health. Furthermore, BTI is sensitive to unforeseen and substantial increases in tobacco and nicotine-related taxes in its key markets, which might significantly impact its revenues and results of operations.

Outlook:

• Revenue Estimation: BTI indicated in its H1FY21 pre-close trade report that it expects a revenue increase of >5% in FY21 (ahead of its previous guidance of 3-5%).
• EPS Estimation: The leverage ratio (Adjusted Net Debt / Adjusted EBITDA) will be reduced to 3.0x, and EPS will rise in the mid-single digits.

FY21 Guidance (Interim Results Presentation, H1FY21)

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

BTI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

BTI's share price has been largely stable over the past 12 months, increasing only by 8.33%. It is currently leaning towards the mid-band of the 52-week range of USD 31.60 to USD 41.14. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 51.57. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 43.36.

Considering the company's expansion to new categories, robust dividend yield, regulatory clearances, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 36.16, down 0.60% as of October 21, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Fortuna Silver Mines Inc.

FSM Details

Fortuna Silver Mines Inc. (NYSE: FSM) is a precious metals and mining company based in Canada that operates in Peru, Mexico, and Argentina. It works in Latin America on precious and base metal mining and associated operations, such as exploration, extraction, and processing. FSM runs the Caylloma silver, lead, and zinc mine (Caylloma) in southern Peru, the San Jose silver and gold mine (San Jose) in southern Mexico, and the open-pit gold heap leach mine at its Lindero site (Lindero Mine) in northern Argentina, which is now in the ramp-up phase. As of October 21, 2021, the company's market capitalization stood at USD 1.40 billion.

Latest News:

• Q3FY21 Gold Production data: FSM released its Q3 production figures from its four active mines on October 12, 2021. As a result, 65,425 ounces of gold and 1,711,881 ounces of silver were produced. During 9MFY21, gold and silver output totaled 131,029 ounces and 5,518,458 ounces, respectively.
• Optimistic Production outcome: On September 29, 2021, FSM stated that it had decided to develop an open-pit mine at the Séguéla gold project in Côte d'Ivoire. Accordingly, long-lead goods have been acquired, and development teams have been created on the ground.

H1FY21 Results:

• Robust Growth in Revenues: The company's sales rose 159.00% YoY during H1FY21 (ended June 30, 2021) to USD 238.35 million from USD 92.03 million during H1FY20, due to an increase in metal concentrates across all mines.
• Expansion in Net Income: The net income for H1FY21 was USD 42.58 million vs. a loss of USD 10.15 million reported in H1FY20.
• Boost in Metal production: Silver output increased by 49% from Q2FY20 to 1.89 million ounces. Gold output increased by 337% from Q2FY20 to 31.05 thousand ounces. Production of lead increased by 20% in Q2FY20 to 8.14 million pounds. Zinc output increased by 7% from Q2FY20 to 11.76 million pounds.

Key Risks:

• Metal Price Risk: The company's sales were affected by USD 1,922, USD 812, USD 419, and USD 298 for every +/-10% change in Silver, Gold, Lead, and Zinc prices. As a result, any adverse price movement may harm the company's financial situation.
• Regulatory Risk: FSM also works as a metal mining company, which requires several ongoing permits from the federal and local governments. As a result, tighter limitations or non-compliance with necessary regulations may harm the company's profitability.

Outlook:

• Gold and Silver Production Guidance: By 2021, total silver and gold production is expected to be 6.8 to 7.6 million ounces and 194 to 223 thousand ounces, respectively, indicating a 90 to 116% growth YoY.
• Yaramoko Mine: For the H2FY21, gold output from the Yaramoko Mine in Burkina Faso adds to the company's full-year estimate, accounting for 30-32% of the amended guidance.
• Séguéla gold Project: The construction decision on the Séguéla gold project is expected in the Q3FY21.
  

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

FSM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

FSM's share price has fallen 37.42% in the past six months and is currently trading below the mid-point of the 52-week range of USD 3.74 to USD 9.85. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 68.14. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 5.70.

Considering the company's growth prospects, improvement in financial performance, expansion endeavors, associated risk, and current valuation, we recommend a "Buy" rating on the stock at the closing price of USD 4.80, down 0.21% as of October 21, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.