Rating Update: Stock Rating C-Neutral (3/20/20)-Pretium Resources Inc (PVG).

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BUSINESS

Pretium Resources Inc. acquires, explores for, and develops precious metal resource properties in the Americas. It primarily explores for gold, silver, and copper deposits. The company’s principal project is the Brucejack project comprising 4 mining leases and 6 mineral claims covering an area of 3,304 hectares located in northwestern British Columbia. It also owns interest in the Snowfield project consisting of 1 mineral claim covering an area of 1,217 hectares located in northern British Columbia. Pretium Resources Inc. was incorporated in 2010 and is headquartered in Vancouver, Canada.
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INVESTMENT RATING

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With future capital returns forecasted to exceed the cost of capital, PVG is expected to continue to be a major Value Builder.

Pretium Resources has a current Value Trend Rating of C (Neutral).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Pretium Resources has a very high Appreciation Score of 91 but a very low Power Rating of 10, with the Neutral Value Trend Rating the result.

Pretium Resources’ stock is selling well below targeted value. The current stock price of $5.53 compares to targeted value 12 months forward of $22.
Pretium Resources’ very high appreciation potential results in an appreciation score of 91 (only 9% of the universe has greater appreciation potential.)
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Pretium Resources has a Power Rating of 10. (PVG’s very low Power Rating indicates that it only has a better chance of achieving favorable investment performance over the near to intermediate term than 10% of companies in the universe.)
Factors contributing to this very low Power Rating include: PVG’s earnings estimates have fallen very significantly in recent months; recent price action has been unfavorable; and is in a slightly weakened position current.

INVESTMENT PROFILE

PVG’s financial strength is average. Financial strength rating is 56.
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Relative to the S&P 500 Composite, Pretium Resources Inc has slightly more Value than Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that PVG is normal risk. Relative weaknesses include: low forecasted profitability, low historical profitability, low financial strength, and high earnings variability. PVG’s valuation is moderate: low dividend yield, moderate P/E ratio, and low price/book ratio. PVG has unusually low market capitalization.

CURRENT SIGNALS

Pretium Resources’ current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; and rising leverage.

Pretium Resources’ current technical position is very weak. The stock price is in a 2.6 month down move. The stock has declined 33.6% from its prior high. The stock price is below its 200 day moving average which is in a downtrend. Pretium Resources’ stock price decline is extreme and the stock appears oversold.

ALERTS

Recent meaningful negative changes in investment behavior have impacted Pretium Resources Inc (NYSE: PVG): negative upside/downside volume developed.
Pretium Resources Inc (NYSE: PVG) has recently enjoyed marginal positive changes in fundamentals: significant quarterly earnings acceleration occurred.
In light of this we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
Pretium Resources Inc (NYSE: PVG) stock closed at $5.53 on 3/20/20 after a major decline of -13.9%. Moreover, this decline was accompanied by exceptionally high trading volume at 204% of normal. The stock has declined -5.6% during the last week and has been extremely weak relative to the market over the last nine months.

CASH FLOW

In 2019, Pretium Resources experienced a very significant reduction in cash of -$22.2 million (-49%). Sources of cash were much lower than uses. Cash generated from 2019 EBITDA totalled +$217.3 million. Non-operating uses consumed -$2.1 million (-1% of EBITDA). Cash taxes contributed +$5.5 million (+3% of EBITDA). Re-investment in the business amounted to -$55.8 million (-26% of EBITDA). On a net basis, debt investors removed -$197.3 million (-91% of EBITDA) while equity investors supplied +$10.3 million (+5% of EBITDA).
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Pretium Resources’ Non-operating Income, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Pretium Resources Inc Peer Group. (Since 2016 Non-operating Income, %EBITDA has experienced a very sharp decline.) In most years, Pretium Resources was in the top quartile and lower quartile. Currently, Pretium Resources is at median at -1% of EBITDA (-$2.1 million).

Pretium Resources’ Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Pretium Resources Inc Peer Group. In most years, Pretium Resources was in the top quartile and lower quartile. Currently, Pretium Resources is upper quartile at +3% of EBITDA (+$5.5 million).

Pretium Resources’ Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Pretium Resources Inc Peer Group. In most years, Pretium Resources was in the top quartile. Currently, Pretium Resources is slightly above median at -26% of EBITDA (-$55.8 million).

Pretium Resources’ Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Pretium Resources Inc Peer Group. (Since 2016 Debt Investors, %EBITDA has experienced a very sharp recovery.) In most years, Pretium Resources was in the top quartile and lower quartile. Currently, Pretium Resources is substantially below median at -91% of EBITDA (-$197.3 million).

Pretium Resources’ Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Pretium Resources Inc Peer Group. (Since 2017 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Pretium Resources was in the third quartile and lower quartile. Currently, Pretium Resources is at median at +5% of EBITDA (+$10.3 million).

Pretium Resources’ Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Pretium Resources Inc Peer Group. In most years, Pretium Resources was in the top quartile and lower quartile. Currently, Pretium Resources is substantially below median at -10% of EBITDA (-$22.2 million).
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Pretium Resources’ Cash, %Revenue has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by stability for the Pretium Resources Inc Peer Group. (Since 2017 Cash, %Revenue has experienced a very sharp decline.) In most years, Pretium Resources was in the second quartile. Currently, Pretium Resources is substantially below median at +5%.

PROFITABILITY

Pretium Resources’ return on equity has improved significantly since 2018.
Pretium Resources’ very strong positive trend in pretax operating return significantly offset by a very strong negative trend in non-operating factors is a significant analytical factor.
The productivity of Pretium Resources’ assets rose over the full period 2010-2019: asset turnover has enjoyed a very strong overall uptrend that decelerated very sharply after the 2018 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
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Pretium Resources’ return on equity is at the upper quartile (4.3%) for the four quarters ended December, 2019.
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Operating performance (pretax return on assets) is upper quartile (5.2%) reflecting asset turnover that is at the upper quartile (0.31X) and pretax margin at the upper quartile (17.0%).
Tax “keep” rate (income tax management) is lower quartile (49.7%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the lower quartile (1.65X).

GROWTH RATES

There are no significant differences between Pretium Resources’ longer term growth and growth in recent years.
Pretium Resources’ historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth.

Annual revenue growth has been 35.2% per year.

Total asset growth has been -2.6% per year.

Annual E.P.S. growth has been 54.1% per year.

Equity growth has been -2.5% per year. (More recently it has been 3.4%.)
No consensus growth rate forecast is available for Pretium Resources.
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Relative to the Pretium Resources Inc Peer Group, Pretium Resources’ historical growth measures are erratic. Revenue growth (35.2%) has been at the upper quartile. E.P.S. growth (54.1%) has been at the upper quartile. Equity growth (-2.5%) has been substantially below median. Total asset growth (-2.6%) has been substantially below median.

Consensus growth forecast is unavailable.
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PRICE HISTORY

Over the full time period, Pretium Resources’ stock price performance has been variable and significantly below market. Between October, 2011 and March, 2020, Pretium Resources’ stock price fell -44%; relative to the market, this was a -70% loss. Significant price moves during the period: 1) August, 2019 – March, 2020: -58%; 2) February, 2018 – August, 2019: +105%; 3) January, 2016 – July, 2016: +178%; 4) October, 2013 – June, 2014: +153%; 5) August, 2013 – October, 2013: -61%; and 6) February, 2012 – June, 2013: -63%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of -12.2% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2020 of -12.2% is slightly above median relative to Pretium Resources Inc Peer Group.

Current 5-year total return performance of 2.9% is below median relative to the S&P 500 Composite.
Through February, 2020, with below median current 5-year total return of 2.9% relative to S&P 500 Composite, Pretium Resources’ total return performance is at the upper quartile relative to Pretium Resources Inc Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, PVG’s overall valuation is normal. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/revenue is above median. Ratio of enterprise value/assets is below median. Ratio of enterprise value/earnings before interest and taxes is below median. The lowest factor, the price/equity ratio, is at the lower quartile.
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Pretium Resources has a major value gap compared to median valuation. For PVG to fall to lower quartile valuation, its current ratio of enterprise value/revenue would have to decline from the current level of 3.05X to 1.41X. If PVG’s ratio of enterprise value/revenue were to decline to 1.41X, its stock price would be lower by $-4 to $1.
For PVG to achieve upper quartile valuation relative to the Pretium Resources Inc Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 3.05X to 3.82X. If PVG’s ratio of enterprise value/revenue were to rise to 3.82X, its stock price would increase by $2 from the current level of $5.53.

VALUE TARGETS

With future capital returns forecasted to exceed the cost of capital, PVG is expected to continue to be a major Value Builder.
Pretium Resources’ current Price Target of $28 represents a +414% change from the current price of $5.53.
This very high appreciation potential results in an appreciation score of 91 (only 9% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 91, the low Power Rating of 10 results in an Value Trend Rating of C.
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Pretium Resources’ current Price Target is $28 (-6% from the 2019 Target of $30 but +414% from the 03/20/20 price of $5.53). This slight fall in the Target is the result of a +19% increase in the equity base and a -22% decrease in the price/equity multiple. The forecasted increase in cost of equity has a very large negative impact on the price/equity multiple and the forecasted decline in return on equity has a large negative impact as well. Partially offsetting these Drivers, the forecasted increase in growth has a large positive impact.
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PTR’s return on equity forecast is 18.8% — slightly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, variable increase between 2011 and 2019. The current forecast is significantly above the 2016 low of 4%.

PTR’s growth forecast is 11.0% — slightly above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2011 and 2019. The current forecast is well above the 2017 low of 4%.

PTR’s cost of equity forecast is 8.6% — in line with recent levels. Forecasted cost of equity suffered a dramatic, variable increase between 2017 and 2019. The current forecast is above the 2017 low of 5.6%.
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At Pretium Resources’ current price of $5.53, investors are placing a negative value of $-7 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 8.0% per year, and a return on equity of 21.3% versus a cost of equity of 7.2%.
PTR’s 2021 Price Target of $28 is based on these forecasts and reflects an estimated value of existing assets of $6 and a value of future investments of $23.

About John Lafferty 69742 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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