Bushveld Minerals vs AIM120 - Financial Analysis

Calder Capital

12 August 2018

As Bushveld Minerals (LON:BMN) moves into the top 100 AIM companies ranked by market capitalisation, and has the potential to shortly be included in the AIM100 Index (see The race to join the AIM100), it seems a logical step to start comparing the financial metrics of the companies at the top of the AIM.

For the purposes of this analysis, I have assumed a Bushveld Minerals earnings range of 25-45m for 2018. This is based on production guidance and production costs from the company itself, recorded FeV prices for the year so far, and realistic projections of that FeV price for the remainder of the year.

A commonly used metric for comparing profit-making companies is the PE ratio, or price/earnings ratio, calculated by dividing the share price (SP) of the company by the earnings per share (EPS). I have plotted this below for the top 120 companies, using EPS multiplied by shares in issue (SII) to give earnings against market capitalisation. This produces the same result but allows for more relatable values.

Note: The chart has been restricted to < £3 billion market cap and < £120m/yr earnings to provide a magnified view of the area of interest. This removes four companies from the analysis: ASOS, Fever-Tree, Burford Capital and Secure Income REIT. Any loss-making companies have also been removed.

Using the displayed PE ratio of 25 as a visual guide, you can see that this splits the companies almost equally above and below the line. It is important to note at this point that valuing a company is not as simple as multiplying their earnings by a set ratio – if it were, we would see a far stronger correlation in the data. There are many other factors to consider, such as sector, growth potential/rate, as well as cash reserves and debt commitments. The latter can be considered quite easily, by converting market capitalisation to a more encompassing metric, the Enterprise Value (EV).

The EV sets out to value a company more accurately than the market capitalisation alone and takes into consideration current cash reserves and debt commitments. Incorporating these factors into the valuation effectively gives a theoretical takeover price of the company, i.e. the price someone would need to pay to buy the company and pay off all debts. There are more complex versions of EV out there, but the simplest equation is EV = market value of stock + total debt – cash reserves. Performing this adjustment for the same companies illustrated above leads to the following plot.

Note: The chart has been restricted to < £3 billion enterprise value and < £120m/yr earnings to provide a magnified view of the area of interest. This removes five companies from the analysis: ASOS, Fever-Tree, Burford Capital, Secure Income REIT and Dart Group. Any loss-making companies have also been removed.

At first glance this plot looks largely the same, but a closer look reveals that several of the companies previously surrounding BMN have been shifted to the right, closer to or beyond the PE ratio line. This is due to one key difference: Bushveld Minerals has no debt, while other companies have had to borrow large sums of money to get into a similarly cash generative position.

It is difficult to comment on each specific company without looking at detail, but let’s look at what we know about Bushveld Minerals:

  • Significant production growth to come from Bushveld Vametco through expansion of the Vametco facility, introduction of Brits ore to the feedstock, and Mokopane development.
  • Vanadium prices near all-time highs, with a structural deficit in the market to ensure they stay there or increase further.
  • Rapidly increasing interest in VRFBs and their role in our energy future, for which Bushveld Energy is perfectly positioned to take advantage.
  • Strong momentum behind the share price and sentiment in the company, driven by an ambitious board with an increasingly impressive track record of delivery.

From this analysis of financial metrics, along with the expected growth of both the company and the vanadium industry, it becomes clear why the company’s CEO recently stated that “the story of Bushveld Minerals is not yet half told.”

Disclaimer: All data is taken directly from the sources described below. Financial data is taken from the most recent annual reports, which may be up to one year old. While there may be some errors in the data, it is thought to be largely correct.

Data sources: List of the top 120 companies by market cap, as published by the London Stock Exchange on 6th August 2018. – https://www.londonstockexchange.com/statistics/markets/aim/aim.htm

Share price, shares in issue and earnings per share as recorded by Google Finance. – https://www.google.com/finance

Dividends per share, debt and cash as published by The Telegraph, taken from the latest financial results. – https://shares.telegraph.co.uk/

This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

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