(BFM Bourse) – The research office raised its advice on the shares of the mining and metallurgical group to “outperformance”, granting it a price target of 85 euros, i.e. a potential of 38% compared to the closing price of Friday.
The avalanche of company publications can cause the market to react relatively little when a company’s results are announced. Before rectifying the situation in a second step, once certain information has been digested or after the analysts have revised their estimates.
This is what happened this Monday with Fnac Darty, whose shares rose by 8% around 3:30 p.m., the stock reacting belatedly to renewed speculation surrounding the value. But also on Eramet which gained 6.3% while Odddo BHF revised its opinion on the value, going from “neutral” to “outperformance”. The research office gives a price target of 85 euros to the stock, representing a potential of 38% compared to Friday’s closing price of 61.75 euros.
Eramet published adjusted turnover down 26% year-on-year in the third quarter to 980 million euros and revised downwards its gross operating profit (Ebitda) target to around 800 million euros. for the whole of 2023 compared to 900 million euros previously. This adjustment is explained by lower production expected from Weda Bay in Indonesia, where the group is facing “a local context of slowdown in the administrative process for issuing mining permits”, explained the company.
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Well-controlled costs
Eramet has a joint venture alongside Tsingshan (43% for the French group and 57% by the Chinese company) which operates the largest nickel mine in the world at Weda Bay. Due to the difficulties in obtaining these authorizations to increase its activity, Eramet has revised its nickel ore production forecast downwards, to 30 million wet tonnes compared to 35 million previously.
“Even if the reduction in Weda Bay’s objective in low-grade ore is a disappointment, we are reassured by the good general performance of the third quarter in terms of production and costs”, appreciates Oddo BHF. Weda Bay and Comilog, a subsidiary of Eramet in Gabon which specializes in the extraction and processing of manganese ore, both posted a production record, notes the research office.
On costs, Comilog’s “free on board” cash cost, an indicator which relates all production and structural costs to the tonnage sold, stood at $2.1 per dmtu (“dry metric ton unit”). “, a dmtu corresponding to 10 kilograms of manganese content) which is “close to the levels before the production incidents at the end of 2022-beginning of 2023”, assesses the design office. According to the latter, Comilog should further improve its cost performance in the fourth quarter.
For its part, SLN, a subsidiary of Eramet operating in New Caledonia and in fragile health, has also “significantly improved” its main indicator on costs, even if this does not yet allow (far from it) this subsidiary to be profitable, judges Oddo BHF.
The design office also sees potential good news both for Weda Bay, which according to the financial intermediary has a good chance of obtaining agreement to increase its production to 35 million wet tonnes taking into account “the needs giants of the Indonesian NPI (nickel pig iron, Editor’s note) industry”, as well as for Comilog, which could benefit from an increase in nickel market prices.
Oddo BHF also appreciates Eramet’s commitment regarding SLN. The company said last week that it was “confirming its decision to no longer provide new financing” to this subsidiary.
An investor day on November 13
“This is the first time to our knowledge that it has committed so clearly in this direction and an exit at a reasonable cost would have a value creation potential of 5 euros per security corresponding to the negative value retained in our sum of parts (a method of calculating the valuation of a company which involves evaluating each of these activities before adding them with a possible holding discount, Editor’s note)”, underlines Oddo BHF.
The research office also believes that the day dedicated to investors on November 13 should “contribute to improving the perception of the group”. The financial intermediary believes that this day could be an opportunity to announce a phase 2 investment decision in the project to exploit the Centenario lithium deposit, in Argentina, which according to Oddo BHF could create a surplus of value of nine euros per share.
Concerning this Argentinian project, the Stifel bank also judged in June that “initially, this project should increase the group’s underlying profit by more than 10%, but could ultimately bring in three times more” , afterwards.
“In this context, the stock appears extremely cheap at only three times the adjusted EBITDA (gross operating profit) expected for 2024, a discount of 35% on other mining companies,” concludes Oddo BHF.
Julien Marion – ©2023 BFM Bourse
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