On today’s TSX Breakouts report, there are 28 stocks on the positive breakouts list (stocks with positive price momentum), and five securities are on the negative breakouts list (stocks with negative price momentum).
Defensive stocks are in demand ahead of the first quarter earnings season. Stocks in the gold and utilities sectors represent roughly half of the names on the positive breakouts list.
Discussed today is a top-performing gold stock that is on the positive breakouts list – Dundee Precious Metals Inc. (DPM-T). DPM is the second best performing stock in the S&P/TSX composite index year-to-date with a gain of 60 per cent.
A brief outline on DPM is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Headquartered in Toronto, DPM is a gold and copper producer with projects in Bulgaria, Namibia, Ecuador and Serbia.
The company’s current production stems from two mines in Bulgaria, its flagship operation, Chelopech (2023 gold production is anticipated to be between 150,000 and 170,000 ounces and 2023 copper production is expected to be between 30 and 35 million pounds), and its high-grade open pit mine Ada Tepe (2023 gold production is forecast to be between 120,000 and 145,000 ounces). In 2022, the company produced roughly 273,000 ounces of gold and over 30-million pounds of copper.
Investment thesis
- Gold production profile. Management’s gold production outlook calls for between 270,000 to 315,000 ounces in 2023, declining to between 245,000 and 285,000 ounces in 2024, and falling to between 230,000 and 270,000 ounces in 2025. Gold production from Ada Tepe is steadily declining, forecast to produce between 70,000 and 85,000 ounces of gold in 2025, down from 94,000 ounces reported in 2022.
- Low all-in sustaining costs (AISC). Management is forecasting AISC of between US$700 and US$860 per ounce in 2023, and AISC of between US$720 and US$880 per ounce in 2024 and 2025. In 2022, AISC were US$885 per ounce.
- Potential near-term catalyst with an updated feasibility study due out later this year. Its Loma Larga project in Ecuador offers the company significant upside potential with an updated feasibility study due out in the second half of this year. Production would be several years out, targeted for late 2025. Management has indicated that the Loma Larga project offers potential gold production of approximately 200,000 ounces per year.
- Potential upside from exploration results.
- Healthy balance sheet. Over $433-million of cash and no debt on its balance sheet at year-end.
- Attractive valuation relative to its industry peers (trading at a discount to its peers).
- Dividend yield of 2 per cent.
- ·Strength in the price of gold.
Quarterly earnings
After the market closed on Feb. 16, the company reported solid fourth quarter financial results. Gold production totaled 273,109 ounces in 2022 and 73,420 ounces in the fourth quarter. Copper production totaled over 30 million pounds in 2022 and 7.4 million pounds in the fourth quarter. Adjusted earnings per share came in at 18 cents in the quarter, a penny above the consensus estimate. The following day, the share price rallied 3.6 per cent.
On May 3, the company will be releasing its first quarter 2023 financial results after the market closes.
Returning capital to its shareholders
In 2022, 27 per cent of free cash flow was returned to its shareholders.
The company pays its shareholders a quarterly dividend of 4 US cents per share or 16 US cents per share yearly, equating to a current annualized yield of just over 2 per cent.
In the first quarter of 2023, DPM repurchased roughly 1.29-million shares at an average price per share of $8.82. In 2022, the company repurchased 2,471,500 shares at an average price per share of $7.14 as part of its share buyback program.
Analysts’ recommendations
This stock with a market capitalization of just over $2-billion is well covered by analysts on the Street. According to Bloomberg, DPM has eight buy recommendations and one “neutral” recommendation (from CIBC’s Cosmos Chiu).
The firms providing research coverage on the company are as follows in alphabetical order: Beacon Securities, BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, M Partners, National Bank Financial, RBC Dominion Securities, Scotiabank, and Stifel Canada.
Revised recommendations
Several analysts have revised their targets in recent months including:
- BMO’s Raj Ray to $14 from $12.50 in March.
- National Bank’s Don DeMarco to $12.50 from $11.50 in February.
- RBC’s Wayne Lam to $12 from $11 in February.
Financial forecasts
The consensus earnings per share estimates are 90 US cents in 2023 and 64 US cents in 2024. The Street is forecasting cash flow per share of US$1.49 in 2023 and US$1.12 the following year.
Forecasts have been rising. Three months ago, the Street was earnings per share of 75 US cents in 2023 and 53 US cents in 2024. The consensus cash flow per share estimates were US$1.32 for 2023 and US$1.01 for 2024.
Valuation
The stock is commonly valued on a price-to-net asset value and price-to-cash flow basis.
According to Bloomberg, the stock is trading a price-to-cash flow multiple of 5.2 times the 2023 consensus estimate, above the five-year historical average multiple of 4.5 times but below its peak multiple of approximately 6.8 times during this time period.
The average one-year target price is $12, suggesting the share price has 15 per cent upside potential over the next year. Individual target prices are: $9.50 (from Canaccord’s Dalton Baretto), $10, $11.50, two at $12, two at $12.50, and two at $14.
Chart watch
Year-to-date, the stock has experienced a parabolic move, rising 60 per cent. DPM is the second best performing stock out of 232 stocks in the S&P/TSX composite index, just behind Equinox Gold Corp. (EQX-T), which is up 68 per cent.
In terms of key technical resistance and support levels, the stock is approaching a major ceiling of resistance around $10.60. Should the stock price break and hold materially above $10.60, the next resistance level is around $12. After that, there is resistance near $14.50. Looking at the downside, there is strong technical support between $7.50 and $8, close to the 200-day moving average (at $7.12).
ESG Risk Rating
According to Sustainalytics, DPM has an environmental, social and governance (ESG) risk rating of 34.5 as of April 6, 2023. A rating of between 30 and 40 reflects a “high” risk.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
This report should not be considered an investment recommendation
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