One of the cheapest stocks in our All Investable Stock Screener is Silvercorp Metals Inc (NYSEAMERICAN: SVM).
Silvercorp Metals Inc (Silvercorp) is a mineral mining company. It acquires, explores, develops, and mines precious and base metal mineral properties at its producing mines and exploration and development projects in China. Its segments are Mining and Administrative. Its projects include Ying Mine, HPG Mine, TLP Mine, LM Mine in the Ying Mining District, BYP Gold- Lead-Zinc Mine and the Gaocheng project.
A quick look at Silvercorp’s share price history below over the past twelve months shows that the price is down 6%, but here’s why the company remains undervalued.
(SOURCE: GOOGLE FINANCE)
The following data is from the company’s latest financial statements, dated March 2018.
The company’s latest balance sheet shows that Silvercorp has $106 Million in total cash and cash equivalents and zero debt. Therefore, Silvercorp has a net cash position of $106 Million (cash minus total debt).
Financial strength indicators show that the company has a Piotroski F-Score of 5, an Altman Z-Score of 4.82, and a Beneish M-Score of -2.49. All of which illustrate that the company remains financial strong.
If we consider that Silvercorp currently has a market cap of $444 Million, when we add the minority interests of $69 Million then subtract the net cash totaling $106 Million, that equates to an Enterprise Value of $407 Million.
If we move over to the company’s latest income statements we can see that Silvercorp has $66 Million* in trailing twelve month operating earnings which means that the company is currently trading on an Acquirer’s Multiple of 6.17, or 6.17 times operating earnings. That places Silvercorp squarely in undervalued territory.
The Acquirer’s Multiple is defined as:
Enterprise Value/Operating Earnings*
*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
It’s also important to note that if we take a look at the company’s latest cash flow statements we can see that Silvercorp generated trailing twelve month operating cash flow of $68 Million and had $27 Million in Capex. That equates to $41 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 10%.
In terms of Silvercorp’s annualized Return on Equity (ROE) for the quarter ending March 2018. A quick calculation shows that the company had $312 Million in equity for the quarter ending December 2018 and $329 Million for the quarter ending March 2018. If we divide the combined total of both numbers by two we get $320 Million. If we consider that the company has $47 Million in net income (ttm), that equates to an annualized Return on Equity (ROE) for the quarter ending March 2018 of 15%.
Other considerations regarding Silvercorp include the company’s trailing twelve month revenue of $170 Million, which is the highest in the past five years. As is the company’s net profit of $47 Million. Silvercorp’s cash and cash equivalent holdings of $106 Million is also a record high and 10% higher than FY2017 of $96 Million, plus the company has zero debt.
Summary
In summary, Silvercorp is trading on a P/E of 9.8 compared to its 5Y average of 22.27**, and an Acquirer’s Multiple of 6.17, or 6.17 times operating earnings. The company has a strong balance sheet with a net cash position of $106 Million. Financial strength indicators show that Silvercorp is financial sound with a Piotroski F-Score of 5, an Altman Z-Score of 4.82, and a Beneish M-Score of -2.49. The company also generates a FCF/EV Yield of 10% (ttm) and has an annualized return on equity of 15% for the quarter ending March 2018. Silvercorp’s trailing twelve month revenue of $170 Million and net profit of $47 Million are the highest in the past five years.
(**Source: Morningstar)
Superinvestors Currently Holding Positions In Silvercorp include:
Superinvestors currently holding positions in Silvercorp include Jim Simons and Cliff Asness.
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