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Momentum’s stock pick of the week: Gemfields

Published Apr 8, 2022

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Momentum’s stockbroking division, Momentum Securities, said yesterday that its stock pick of the week was the Gemfields Group.

Gemfields, a company incorporated in Guernsey and headquartered in London, UK, is a supplier of coloured gemstones. The company specialises in the mining, processing and sale of coloured gemstones, in particular emeralds and rubies.

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Faheema Adia, an equity analyst at Momentum Securities, said yesterday that a key component of Gemfields’ model had been the development of its proprietary grading system and a pioneering auction and trading platform.

“Gemfields has reported an excellent set of results for FY21 (full year 2021), rebounding well from the impact of Covid-19, which has in the past, disrupted operations,” she said.

The group had reported record-high revenue and cash flow generation, benefiting from the Covid-19 related demand. This record-high revenue and the high price per carat achieved during 2021, showed a positive development in both travel and product demand.

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“We expect the demand to remain strong and Gemstone pricing to remain elevated for FY 22 and FY 23,” Adia said.

In terms of the valuation, Gemfields was trading at a 12-month forward price to earnings (PE) of 5.6 times. This was below the average peer forward PE of 6.7 times, it was also trading below Gemfields own five-year historic forward PE of 21 times.

“In our view, it is undervalued and looks attractive at the current price level of R3.62. We have a price target of R6 on the share, which would result in an upside of over 65 percent,” she said.

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