Kenmare downgraded to “hold” by Berenberg after failed bid talks

Investing.com -- Berenberg has downgraded Kenmare Resources (LON:KMR) to “hold” from “buy,” cutting its price target to GBp390 from GBp580, after the collapse of a takeover bid led by Oryx Global Partners (NYSE:GLP) and former CEO Michael Carvill.

The brokerage cited increased market volatility and operational uncertainty as key drivers of the downgrade.

The analysts said the original proposal, announced on March 6, was seen as attractive, prompting a temporary upgrade to “buy.” 

However, they had anticipated a higher offer that failed to materialize. The revised bid was lower due to deteriorating market conditions, including new tariffs and weakening demand from China. 

As no agreement was reached, both parties withdrew, and Kenmare’s shares fell around 20%.

With no other bidders in sight and the bid process concluded, Berenberg sees limited upside. 

The GBp390 target is based on a blend of 1x risked NAV, using a 0.7x risk factor, and 2.1x EV/EBITDA, Kenmare’s three-year trailing average.

The stock was trading at GBp314 as of June 19, equivalent to 0.61x NAV and 2.9x EBITDA.

Kenmare is entering a transitional phase, commissioning its Wet Concentrator Plant A upgrade. Berenberg expects this to drive negative free cash flow in 2025. 

Capital expenditure is projected at $200 million for the year, with free cash flow per share estimated at –$0.63. Earnings per share are forecast at $0.53 in 2025, flat from earlier estimates.

The company reported a strong order book for the second half of 2025 but gave no additional detail on pricing or demand. Berenberg warned of downside risks due to global economic softness and tariff pressures.

Operational performance remains a concern. While Kenmare aims for a 1.2mtpa ilmenite run rate, delivery has lagged. 

Meanwhile, the company’s Implementation Agreement with the Mozambique government expired in December 2024, and no new deal has been signed, adding strategic uncertainty.

Financially, Kenmare’s 2025 sales are forecast at $406 million, down from $415 million in 2024. EBITDA is expected to fall to $138 million in 2025 from $157 million in 2024, with EBIT projected at $71 million.

Net profit is estimated at $47 million. The dividend per share is expected to decline to $0.21 in 2025, with a yield of 5.2%.

Margins are also forecast to contract, with EBITDA margin at 34.0% and EBIT margin at 17.5%. Return on capital employed is expected to fall to 5.0%. Net debt is forecast to rise to $100 million from $21 million in 2024.

Berenberg noted that although the Moma asset remains attractive, Kenmare’s operational track record and current macroeconomic conditions justify its lower valuation. 

Absent another suitor or operational turnaround, the analysts see no immediate catalyst for share price upside.