Endeavour Silver Corporation

EXK Details

Key Positives:

Robust Jump in ROE (7.00% in FY21 vs 0.80% in FY20), Increase in Gross Margins (22.00% in FY21 vs 19.70% in FY20), Strong Balance Sheet, Business-Friendly Jurisdiction.

Key Negatives:

Metal Pricing Risk, Long Cash Conversion Cycle (101.2 days in FY21 vs Industry Median of 64.0 days) 

Endeavour Silver Corporation (NYSE: EXK) is a Canadian precious metals mining company focused on silver mining and associated activities in Mexico, including acquisition, exploration, development, extraction, processing, refining, and reclamation. In addition, the firm is doing research in Chile. The company's efforts include Parrral, Lourdes, and Guadalupe y Calvo. The Parrral project spans approximately 3,432 hectares of exploration property in Hidalgo de Paroral, Mexico's historic silver mining zone. The Lourdes project is in the El Tigre mining zone near San Felipe, Guanajuato.

Latest News:

• Positive Drill Results for Parral Project: EXK is happy to share encouraging drill results from its continuing exploration campaign at the Parral project in the Mexico's state of Chihuahua. Since early December, the company has drilled almost 4,300 metres in 21 holes and the Veta Colorada structure, focusing on different regions.
• Anticipating Closing Acquisition of Pitarrilla: SSR Mining has agreed to sell Pitarrilla to EXK for USD 70 million-plus a 1.25% NSR royalty. It had previously announced a USD 46 million equity fundraising, which would be used to pay cash and a portion of the Pitarrilla acquisition price. The deal is expected to be completed in Q2 2022.

Q1FY22 Results:

• Increase in Revenue: The revenue has increased 19.40% year over year to USD 165.32 million in FY21 (ending December 31, 2021), up from USD 138.46 million in FY20, due to a 38.61% increase in payable silver ounces produced by and a 16.76% increase in realized silver price per ounce.
• The surge in Bottom Line: EKX's net income increased dramatically from USD 1.16 million in FY20 to USD 13.96 million in FY21.
• Strong Production: 1,314,955 ounces (oz) of silver and 8,695 oz of gold for 2.0 million oz silver equivalent (AgEq).
• Increased Cash Flow: In the quarter under consideration, the company reported USD 20.6 million in operating cash flow before working capital changes, an increase of 293%. Mine operating cash flow before taxes increased 101% to USD 26.7 million.

Key Risks:

• Metals Pricing Risk: The company is exposed to volatility in the underlying commodity prices, the recent fall in the silver prices had a negative a negative impact on the EKX shares.

Outlook:

2022 Outlook (Source: Investors Presentation, April 2022)

Valuation Methodology: Price to Earnings Multiple based Relative Valuation

(Source: 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

Stock Recommendation:

EXK's stock price has fallen 36.86% in the past month and is leaning towards the lower of its 52-week range of USD 7.76to USD 3.21. We have valued the stock using the Price to Earnings value-based relative valuation methodology and arrived at a target price of USD 3.70.

Furter, silver prices are expected to recover and remain elevated in mid-term to long-term, that would boost the company fundamentals in coming quarters. Considering the 2022 production guidance, Solid increase in revenue, strong growth in the cash flows, associated risks, and current valuation, we recommend a "Speculative Buy" rating on the stock at the closing market price of USD 3.10, down 4.62% as of May 10, 2022.

  EXK’s 1 Year Technical Price Chart (as of May 10, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.

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