On today’s Breakouts report, there are 70 stocks on the positive breakouts list (stocks with positive price momentum), and 13 securities are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a small-cap stock on the positive breakouts list – New Gold Inc. (NGD-T). In Nov., the share price experienced a bullish “golden cross” with the 50-day moving average crossing above the 200-day moving average.
Year-to-date, the share price is up 54 per cent, making it the 16th best performing stock out of 247 securities in the S&P/TSX SmallCap Index. On Mon. Dec. 18, New Gold will be added to the S&P/TSX composite index, which could keep the positive price momentum going.
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A brief outline on New Gold is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Headquartered in Toronto, New Gold is a gold producer with assets in Canada. The company’s New Afton mine is located 10 kilometers west of Kamloops, B.C. and its Rainy River mine is located in northwestern Ontario, 65 kilometers northwest of Fort Frances.
Investment thesis
- Strength in the underlying commodity price
- Low geopolitical risk with operations in Canada
- Accelerating free cash flow generation
- Fair valuation
- Potential catalysts: Commercial production from New Afton’s C-Zone targeted for the second half of 2024 and production from Rainy River’s Main Zone expected in the fourth quarter of 2024.
Quarterly results and outlook
On Oct. 25, the company reported its third-quarter financial results. Production totaled 111,204 gold equivalent ounces (82,986 ounces of gold, 145,452 ounces of silver and 13.2 million pounds of copper), up 22 per cent year-over-year. All-in sustaining costs (AISC) per GEO (gold equivalent ounce) sold totaled US$1,477. Adjusted earnings per share came in at 3 cents. The company generated free cash flow of $22 million during the quarter. At quarter-end, the company had a cash balance of $179-million.
Rainy River: For 2023, management forecasts production of between 235,000 and 265,000 GEOs from Rainy River with an AISC per GEO of between US$1,475 and US$1,575. Production from Rainy River’s underground Main Zone is expected to occur in the fourth quarter of 2024, which is anticipated to increase production from Rainy River to approximately 315,000 GEOs until 2027 with AISC’s estimated to decline to roughly U.S. $1,100.
New Afton: For 2023, production from New Afton is anticipated to be between 130,000 and 160,000 GEOs with an AISC per GEO expected to be between US$1,505 and US$1,605. Commercial production from New Afton’s C-Zone is on track, slated for the second half of 2024. Production from the C-Zone is expected to ramp-up in 2024 and average 230,000 GEOs annually until 2030.
On the earnings call, chief operating officer Yohann Bouchard provided a positive outlook, “We are now looking forward to the next three years in which we see a growing production profile with declining costs, driving increasing cash flows.” He added, “Beyond 2030, there is significant upside that could extend the life of mine [at New Afton] for many more years, which is supported by very encouraging exploration results.”
Dividend policy
The company does not pay its shareholders a dividend.
Analysts’ recommendations
This small-cap stock with a market capitalization of $1.4-billion has mixed recommendations. Since the beginning of Oct., nine analysts have issued research recommendations, of which four are buy recommendations, four are neutral calls, and one is a “reduce” recommendation (from TD analyst Steven Green, who has maintained that rating throughout 2023).
The nine firms providing recent analyst coverage on the company arE: BMO Nesbitt Burns, Canaccord Genuity, CIBC World Markets, Laurentian Bank, National Bank Financial, Raymond James, RBC Capital, Scotiabank and TD Securities.
Revised recommendations
Quarter-to-date, multiple analysts have raised their target expectation.
- BMO’s Brian Quast to $2.25 from $2.
- National Bank’s Mike Parkin to $2 from $1.90.
- Raymond James’ Farooq Hamed to US$1.75 from US$1.50.
- TD’s Steven Green to US$1.05 (the low on the street) from US$1.
Financial forecasts
The Street is forecasting revenue of US$784-million in 2023, US$892-million in 2024 and US$966-million in 2025. The consensus earnings before interest, taxes, depreciation and amortization (EBITDA) estimates are US$280-million in 2023, US$415-million in 2024, and US$494-million in 2025. The consensus cash flow per share estimates are 43 US cents in 2023, 56 US cents in 2024 and 71 US cents in 2025. The consensus earnings per share estimates are 10 US cents in 2023, 17 US cents in 2024, and 23 US cents in 2025.
Valuation
Analysts commonly value the stock on a price-to-net asset value basis and also on an enterprise value-to-EBITDA basis.
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 3 times the 2024 consensus estimate, above the three-year historical average of 2.4 times.
The average one-year target price is $2.16, implying the share price has 5 per cent upside potential over the next 12 months. Individual target prices are: US$1.05 (from TD’s Steven Green),$2, US$1.50, US$1.60 $2.25, two at US$1.75, $2.50, and $2.65 (from Canaccord’s Jeremy Hoy).
Insider transaction activity
Quarter-to-date, two insiders have reported trading activity in the public market.
On Nov. 21, vice-president, general counsel and corporate secretary Sean Keating exercised his options, receiving 67,600 shares at a cost per share of $1.17 and sold 67,600 shares at a price per share of $1.83 with 81,095 shares remaining in this particular account. Net proceeds exceeded $44,000, not including any associated transaction charges.
On Nov. 3, chief financial officer Rob Chausse exercised his options, receiving 88,965 shares at a cost per share of $1.17 and sold 88,965 shares at a price per share of $1.70 leaving 975,454 shares in this particular account. Net proceeds exceeded $47,000, excluding any associated transaction fees.
Mr. Chausse will be retiring at the end of the year and vice-president, finance Keith Murphy has been announced as his successor.
Chart watch
In November, the share price experienced a bullish “golden cross” with the 50-day moving average crossing above the 200-day moving average.
In terms of key technical resistance and support levels, the share price is current trading just above a major ceiling of resistance around $2. If the share price can meaningfully break and hold above this level, the next major resistance level is around $2.50 and after that around $3. Looking at the downside, there is strong technical support around $1.50, near its 50-day moving average at $1.58 and its 200-day moving average at $1.52.
ESG Risk Rating
According to risk provider Sustainalytics, New Gold has an environmental, social and corporate governance (ESG) risk rating of 34.6. A risk rating of between 30 and 40 reflects a high risk rating.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.