Investor column: Hochschild Mining, Persimmon, Goodwin


Purchase: Hocheschild Mining (HOC)

Profit increased due to higher silver and gold prices, but the announcement of the interim dividend was delayed due to reserve issues. Alex Hamer writes..

Historically high silver and gold prices this year helped Hochschild Mining in the first half of the year and delivered higher profits despite rising costs. Silver and gold aren’t as high as last year, but Hocksilt’s free cash flow is $ 54 million from last year’s negative zone.

Miners’ net cash also fell from $ 22 million at the end of 2020 to $ 51 million.

However, Hochschild has yet to declare an interim dividend because the company “did not have sufficient distributable reserves at the right time” due to compliance issues with “specific past dividends”.

Deposits will be announced by the end of the month, subject to the constitution of these reserves.

Other issues can be difficult to resolve. CEO Ignacio Bustamante said he was “seriously affected” by a car crash that killed 26 workers in June. Social investment requirements. ”

However, Hochschild repeated annual production and cost forecasts equivalent to 31-32 moz silver and $ 14.1-14.5 / oz silver, and analysts said cash profits adjusted for the whole year were 277,100 compared to last year. It is expected to increase significantly from $ 10,000 to $ 442. NS.

Despite these prospects, Hochschild has fallen to 154p, almost a third since the start of the year. A large interim dividend can favor more investors.

Purchase: Khaki (PSN)

Despite lingering suspicions in the industry, the immense profitability of home builders cannot be escaped. I’m writing to Alex Newman..

As usual, khaki has drawn the curtain on its key indicators Transaction updates At the beginning of July, we drew natural conclusions on the statutory half-year results.

However, the initially indifferent market reactions surprised some investors in the distribution of capital, despite the previous warning that the swift 110p dividend paid to shareholders on August 13 will be the last of the year. This suggests that you may have stuck to it. Income investors have time to wait for their next annuity, as the next regular payment is not expected until June 2022.

After all, there wasn’t much else to darken the mind. CEO Dean Finch has said he expects the housing market to “reaffirm more normal seasonal trade patterns”, compared to significant turmoil seen in at least 2020. Percentage of the first 33 weeks of the year.

This, coupled with a 4.9% year-over-year increase in new average selling prices, explains the rise in incomes, although average national house price inflation is much higher. Therefore, this group is well suited to serve and take advantage of the rampant demand. As part of this, broker Jeffreys predicts that the proportion of affordable home sales will increase in the second half of the year, increasing the average price for the entire 2021 calendar year by just 0.9%.

It can be bad news if input costs continue to rise, but current evidence shows that Persimmon is still making a lot of money from every house he builds. The operating margin on new homes could be above the peak of 31.8% in 2018, but the rise from 26.6% to 27.6% in the six months to June is still very strong.

“We are managing the balance of inflationary pressures well and now expect the highest returns in the sector to remain resilient,” said Finch. Current evidence shows the oligopoly of the housing construction industry and the location of persimmons in it.

Numis analysts raised their earnings guidance for 2021 and 2022 to 252p and 268p per share, respectively, but the decline in dealerships during the period increased sales volume, especially relative to its peers. I warned that it could be deleted.

But you cannot escape the immense profitability of this business. Kaki’s return on core equity is slightly above the three-year average of 37.9%, but the after-tax return on equity (a more meaningful measure of equity and dividends) is 22.6% . to augment.

An expected return of 8% and abundant liquidity should provide comfort, along with a strong land exchange rate and volume increase of around 10%.

Hold: Goodwin (GDWN)

The Engineering Group believes it has passed its peak in oil industry sales, but is eagerly awaiting nuclear and radar products. Write Arthur Sants..

Goodwin is in transition.

Last year’s revenue declined as it hit the radar systems industry due to lower demand for valves from the oil industry and reduced air travel. We don’t expect the oil industry to return to pre-pandemic commercial levels. The group’s profits have not yet returned to the peaks reached during the 2014 oil boom.

Fortunately, Goodwin is starting to benefit from his efforts to diversify into nuclear waste, propulsion and marine hull products. Despite Covid-19, purchase orders at the end of April stood at £ 165million, down a tenth in 2020, but about the same level as in 2019.

Goodwin’s mechanical engineering business, which accounts for two-thirds of sales and 54% of profits, has been blamed for declining demand for oil and gas. Sales have increased from £ 100million to £ 87million. Sales of refractories, another division of the company, stagnated. The Refractory business manufactures industrial coatings that can withstand extreme temperatures and has recently launched some exciting new products in the burgeoning jewelry market.

Overall revenue was down 9%, but lower cost of sales increased gross profit by 12% to £ 39million and operating profit by a third to £ 17million. Costs have skyrocketed over the past year.

As customer fixed investments slowed during the pandemic, Goodwin is now expected to benefit from the economic recovery. In particular, the recovery of the aeronautics industry should help restore the profitability of the radar business. In addition, the company now sells complete radar systems as well as individual components, which should improve profitability.

There are concerns about the structural decline of oil. But product diversification and innovation are encouraging. Nonetheless, we maintain a hold rating until there is more evidence that things are going well.

Chris Dillo: Equity risk in gilts

Recent history has shown that selling bonds is good for stocks. This may not be the case.

Yields increase because of fear Rising interest rates Due to the strong economic growth, it is very different from the rise.

Many believe that bonds run the risk of being sold significantly. It is easy to see how this is done. Yields are limited by the Federal Reserve and the Bank of England’s promise to keep short-term interest rates low. However, if inflation turns out to be more of a problem than expected, they can withdraw those guarantees and thus remove the anchors that hold back returns.

What does this mean for stocks?

If recent history is any guide, that would be great. Many sectors have been strong during periods of high returns. Since 2004, the All-Share Index has been positively correlated with gilt returns, averaging more than 10% higher over the 12 months when 5-year returns increased by 1 percentage point. Many sectors, especially cyclical ones, are even more strongly correlated to changes in performance.

But unfortunately, we shouldn’t assume that the recent past is a good guide for the future.

The impact of rising bond yields on stocks depends on why they are rising. For most of the past two decades, some of the bond sales we’ve seen have been due to the economic recovery. These are situations where stocks, especially circulating stocks, are supposed to work.

But that’s not the only potential for higher returns. It is not entirely clear whether stocks will benefit from the bond selloff due to growing concerns about inflation and rising interest rates. In fact, if investors fear that rising interest rates will slow growth, they can litter their stocks. In such cases, the winner is a well-held defensive title, with cyclical issues such as construction.

In other words. Theoretically, higher bond yields can negatively impact stocks simply because it means investors will apply higher discount rates to future dividends. This has not happened in recent years, as the increase in the risk-free discount rate is offset by the decrease in the risk premium and the increase in the expected growth rate. However, there is no guarantee that this will be the case.

The current economic recovery is likely to be disappointing. Perhaps SMEs cannot grow and may collapse under the weight of the additional debt they incur during the pandemic. Or because consumers have fallen into a more modest habit. Or because the memory of the recession has a lasting effect on the suppression of the psyche of the animal. If so, the fear of rising interest rates will subside and yields will be even lower.

It is tempting to add that in recent years concerns about a significant rise in bond yields have consistently turned out to be false. Yields have generally fallen below expectations since the mid-1990s. But the people warning us about selling bonds were like crying boys. The point of the story is that the wolf finally ate the boy.

In fact, we know less about the future than we think. You don’t know where the bond is going, so you need to diversify. Going all-in to equity is a dangerous bet. And cash is a useful guard against unpleasant surprises both ways.

Chris Dillo is an Investors Chronicle Business Commentator

Investor column: Hochschild Mining, Persimmon, Goodwin Investor column: Hochschild Mining, Persimmon, Goodwin


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