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TMF tip - Fresnillo - what am I missing?

Bhoddhisatva
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TMF tip - Fresnillo - what am I missing?

#230121

Postby Bhoddhisatva » June 17th, 2019, 11:55 am

Folks - like many (I guess) I receive the emails promoting the Motley Fool tip service - and I suspect like many of us I have a soft spot for TMF even though I never took out any of their paid services plus at least I feel their "tips" are not trying to sell me anything - they're just selling their tipping and analysis service.

I get the US and the UK Fool emails and sometimes my curiosity is piqued enough to do some digging ... often the US ones have already been "exposed" and a simple Google using a choice phrase from the anonymised description will yield the answer as to which company it is and on at least one occasion (American Tower - AMT - in the US market) I've bought some and so far (up 50% in 2 years) I'm quite pleased!

Today I received one entitled "The FTSE Double Agent" which spins a story about a FTSE100 mining co. that is under-appreciated and misjudged by the market - and which they believe offers a long term growth opportunity. The linked article (https://www.fool.co.uk/order/nm24061720 ... 7bda3c2617) keeps the company name hidden but since it includes a table of some basic fundamentals (revenues, profit, dividends) it's not too difficult to trawl through the FTSE100 miners and find that those figures published on various sites (e.g., on Hargreaves Lansdown at https://www.hl.co.uk/shares/shares-sear ... nd-reports) correspond to Fresnillo.

Here's where I am surprised - this company has had a sagging SP for a while, there's been some (mistaken I believe bad press about Mexican law changes and a potential threat to permits) and they apparently missed expectations for FY2018. But even at their historically depressed share price, they're still trading on a P/E of 22.94 and although revenues have grown every year for the last 5 years, I see profits have been up and down significantly and then there's the risk of holding foreign shares, currency exposure implied, Mexican permits/legislation problems etc.

So, without buying the TMF service, which might include some hidden gem or truth, can anyone see my scepticism about Fresnillo? Why should this be a good tip when - as Benjamin Graham might say - the price of ownership is high, I believe too high?

Bhoddhisatva
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Re: TMF tip - Fresnillo - what am I missing?

#230128

Postby Bhoddhisatva » June 17th, 2019, 12:13 pm

Damn! Why can't I edit that post once more to correct some typos and add a bit more beef to the analsysi (e.g., assets and EV).
What have I done or am doing wrong!?

dspp
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Re: TMF tip - Fresnillo - what am I missing?

#230198

Postby dspp » June 17th, 2019, 4:40 pm

Bhoddhisatva wrote:Damn! Why can't I edit that post once more to correct some typos and add a bit more beef to the analsysi (e.g., assets and EV).
What have I done or am doing wrong!?


It will have timed out. I can't remember what the time out period is, but normal users can't edit a post after a certain - fairly brief - amount of time, for obvious reasons.

If you drop me a PM with the edits you would like to make I will do my best on your behalf.

regards, dspp

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Re: TMF tip - Fresnillo - what am I missing?

#230217

Postby 77ss » June 17th, 2019, 6:20 pm

Bhoddhisatva wrote:....
Here's where I am surprised - this company has had a sagging SP for a while, there's been some (mistaken I believe bad press about Mexican law changes and a potential threat to permits) and they apparently missed expectations for FY2018. But even at their historically depressed share price, they're still trading on a P/E of 22.94 and although revenues have grown every year for the last 5 years, I see profits have been up and down significantly and then there's the risk of holding foreign shares, currency exposure implied, Mexican permits/legislation problems etc.

So, without buying the TMF service, which might include some hidden gem or truth, can anyone see my scepticism about Fresnillo? Why should this be a good tip when - as Benjamin Graham might say - the price of ownership is high, I believe too high?


I pay no attention whatsoever to TMF 'tips'. Uniform rubbish in my view.

However, I don't understand your specific problems with Fresnillo. Doubtless it has some issues, but so do most, if not all, companies.

Foreign share? It is UK listed. Currency exposure exists for all companies. All companies with operations abroad are subject to foreign legisation - not to mention UK legislation!

Think about your expressed concerns in the context of Rio Tinto. Perspective!

As it happens, I am currently contemplating a purchase of Fresnillo. I last held it back in 2011-2012 and did rather well out of it at that period.

As I see it, it is basically a geared punt on the price of silver (and gold). Currently silver is at about $15/oz compared to a high of $55/oz back in 2011 (and a low of $6/oz in 2001).

Bhoddhisatva
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Re: TMF tip - Fresnillo - what am I missing?

#230365

Postby Bhoddhisatva » June 18th, 2019, 9:36 am

Ok my point was that it is slowly growing revenue company, profits have varied, at a P/E of 23 it's expensive, it's facing some regulatory issues and an increasingly demanding Mexican government according to some reports.

I don't have a "problem" as you put it with the share - I just don't see why it is such a good buy as it is (currently) apparently expensive. I was hoping to trigger a discussion about valuation and outlook.

Now if you believe this is a geared play on the silver and gold price, I'd be curious as to why that is likely to change significantly any time soon AND to quote Benjamin Graham (I'm re-reading his Intelligent Investor book again!) buying a share not on the basis of its current value, but in the hope (which is what any expectation of future events is) of a future change - especially an external one not under their control (which is the case with the gold and silver prices) strikes me more as "speculation" than investment.

So I'd be very interested in the counter-argument to my undoubtedly cautious view ...

77ss
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Re: TMF tip - Fresnillo - what am I missing?

#230371

Postby 77ss » June 18th, 2019, 10:11 am

Bhoddhisatva wrote:Ok my point was that it is slowly growing revenue company, profits have varied, at a P/E of 23 it's expensive, it's facing some regulatory issues and an increasingly demanding Mexican government according to some reports.

I don't have a "problem" as you put it with the share - I just don't see why it is such a good buy as it is (currently) apparently expensive. I was hoping to trigger a discussion about valuation and outlook.

Now if you believe this is a geared play on the silver and gold price, I'd be curious as to why that is likely to change significantly any time soon AND to quote Benjamin Graham (I'm re-reading his Intelligent Investor book again!) buying a share not on the basis of its current value, but in the hope (which is what any expectation of future events is) of a future change - especially an external one not under their control (which is the case with the gold and silver prices) strikes me more as "speculation" than investment.

So I'd be very interested in the counter-argument to my undoubtedly cautious view ...


I don't assert that it is a 'good buy'. It is not, perhaps, one for the risk-averse. Just one I'm thinking about.

I fail to see the fundamental difference between buying in the hope of a future change, and buying in the hope of no future change. I suspect that the difference between 'speculation' and 'investment' is not that clear cut.

As to why precious metal prices might change significantly, well thats a guess of course, but there seem to plenty of things that could go wrong with the global economy and precious metals are a traditional 'safe haven' - as I am sure you are aware. When and if are the usual imponderables.

Bhoddhisatva
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Re: TMF tip - Fresnillo - what am I missing?

#230382

Postby Bhoddhisatva » June 18th, 2019, 10:39 am

OK - note I have no investment in Fresnillo and just trying to learn ... what I do see from a quick google is quite a few negatives about recent performance as a miner - poorer grades, extra investment in facilities required etc. - all leading to more costs and less margin.

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Re: TMF tip - Fresnillo - what am I missing?

#240646

Postby CommissarJones » July 30th, 2019, 10:23 pm

The stock is certainly cheaper now, falling almost 18% today on the release of interims showing sharp declines in revenue and profit stemming from lower silver prices and production issues (albeit these had been flagged already). I make the current P/E ratio to be about 16.7x (per-share profit in 2018 was 47.5 US cents, or around 39.1 pence at the current exchange rate, versus today's closing price of 653.6 pence) - not cheap by any means, but also not what I would call outrageously expensive.

While FRES certainly has some issues, the recent action in gold and silver prices has me wondering if the metals might be on the verge of some kind of major upward move. If silver were to take off, I would think that the market would quickly forget about the company's blemishes and instead focus on the leveraged exposure to silver that the stock offers. FRES is at a 3 1/2-year low (and looking distinctly oversold in terms of relative strength) at a time when gold is at a 6-year high, quite a disconnect.

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Re: TMF tip - Fresnillo - what am I missing?

#240653

Postby richfool » July 30th, 2019, 10:42 pm

CommissarJones wrote:The stock is certainly cheaper now, falling almost 18% today on the release of interims showing sharp declines in revenue and profit stemming from lower silver prices and production issues (albeit these had been flagged already). I make the current P/E ratio to be about 16.7x (per-share profit in 2018 was 47.5 US cents, or around 39.1 pence at the current exchange rate, versus today's closing price of 653.6 pence) - not cheap by any means, but also not what I would call outrageously expensive.

While FRES certainly has some issues, the recent action in gold and silver prices has me wondering if the metals might be on the verge of some kind of major upward move. If silver were to take off, I would think that the market would quickly forget about the company's blemishes and instead focus on the leveraged exposure to silver that the stock offers. FRES is at a 3 1/2-year low (and looking distinctly oversold in terms of relative strength) at a time when gold is at a 6-year high, quite a disconnect.

I did look at Fresnillo a couple of months ago, as a way to gain exposure to silver and gold and with a dividend income. However I was uncomfortable with the fact that it was solely based in Mexico along with the potential for greater volatility, so I opted for a gold ETF instead, albeit without a dividend.

Having seen today's results and resultant fall in the SP, down 17.7%, I am glad I stayed away.

https://www.hl.co.uk/shares/shares-sear ... lo-usd0.50

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Re: TMF tip - Fresnillo - what am I missing?

#415298

Postby Wuffle » May 26th, 2021, 1:52 pm

I will bump this thread rather than start again.

Recent (28 April '21) report reiterated production guidance for this year at 56.5m oz silver and 700koz gold taking a central figure from range.
The thing is the prices are quite a bit punchier than in previously published full year figures and a very rough revenue figure looks to be;
(56.5 m*25)÷(700k*1800)=2.67bn.

They are having some issues and sentiment isn't on their side, but it might not be the worst performance and a potential p/e in the context of right now seems reasonable.
The share price has moved up from the 6 hundreds to the 8 hundreds but the realised prices were in a trough back then.
After a burst in the covid panic the price seems to be forming a bit of a bowl if you go for that kind of analysis.

Any comments?
As one of the UK markets senior precious metal companies it doesn't get much exposure on here.

W.

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Re: TMF tip - Fresnillo - what am I missing?

#415529

Postby spasmodicus » May 27th, 2021, 11:28 am

Wuffle wrote:I will bump this thread rather than start again.

Recent (28 April '21) report reiterated production guidance for this year at 56.5m oz silver and 700koz gold taking a central figure from range.
The thing is the prices are quite a bit punchier than in previously published full year figures and a very rough revenue figure looks to be;
(56.5 m*25)÷(700k*1800)=2.67bn.

They are having some issues and sentiment isn't on their side, but it might not be the worst performance and a potential p/e in the context of right now seems reasonable.
The share price has moved up from the 6 hundreds to the 8 hundreds but the realised prices were in a trough back then.
After a burst in the covid panic the price seems to be forming a bit of a bowl if you go for that kind of analysis.

Any comments?
As one of the UK markets senior precious metal companies it doesn't get much exposure on here.

W.


Hi Wuffle,
unlike the silver that they mine, FRES 5 year SP performance has been lacklustre to say the least, compared with many other miners. Combined with a yield of only 2% they don't look very attractive to me, but of course this might be construed in a contrarian way. Some pluses and minuses are outlined here,
https://www.youinvest.co.uk/articles/investmentarticles/219566/investors-fail-take-shine-fresnillo

minuses
- all their mines are in Mexico, badly affected by pandemic
- delays in new projects, operational mishaps

pluses
- silver/gold may be seen as a hedge against possible upcoming inflation and fiat currencies
- increased silver demand from solar panels and associated renewables
- things should pick up when covid effects ease in Mexico

Their SP was said back in March to have tracked the price of gold quite closely, by
https://www.sharesmagazine.co.uk/news/shares/fresnillo-misses-forecasts-and-gold-price-decline-worries-investors
I had a look to see whether the ETF SPGP, which I hold for gold tracking purposes, contains any FRES and it appears that it doesn't.


regards
S


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