Has Hochschild Mining (LSE:HOC) Run Too Far After Its 203% One-Year Share Price Surge

• If you are wondering whether Hochschild Mining is still good value after a strong run, this article will walk through what the current share price might be implying.
• The stock has had a mixed short term patch, with a 13.3% decline over the last 7 days and a 7.6% decline over 30 days. It still shows a 32.7% gain year to date and a 202.9% return over the past year, alongside a very large 3 year return and a 236.1% return over 5 years.
• Recent coverage has highlighted the scale of Hochschild Mining’s long term share price moves, with attention on how a very large multi year return compares with the more modest 5 year gain of 236.1%. This mix of time frames has brought fresh focus to whether the current price still reflects the underlying business or has moved ahead of it.
• On Simply Wall St’s valuation checks, Hochschild Mining scores a 3 out of 6 for being potentially undervalued. We will unpack this using several valuation approaches before finishing with a broader framework that can help you judge value beyond any single model.

Hochschild Mining delivered 202.9% returns over the last year. See how this stacks up to the rest of the Metals and Mining industry.

Approach 1: Hochschild Mining Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today. For Hochschild Mining, the model used here is a 2 Stage Free Cash Flow to Equity approach, which focuses on the cash that could, in theory, be available to shareholders after necessary spending.

Hochschild Mining’s latest twelve month free cash flow is reported at US$39.13 million. Based on analyst inputs and further extrapolation, Simply Wall St has ten year free cash flow projections running out to 2035, with the 2028 free cash flow projection at US$405.33 million. These later year estimates are partly based on analyst forecasts and partly on mechanically extended assumptions rather than detailed company guidance.

Bringing all those projected cash flows back to today produces an estimated intrinsic value of £11.24 per share. Compared with the current share price, this implies a 42.2% discount, which suggests that Hochschild Mining may be undervalued on this DCF view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Hochschild Mining is undervalued by 42.2%. Track this in your watchlist or portfolio, or discover 6 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Hochschild Mining.

Approach 2: Hochschild Mining Price vs Earnings

For profitable companies, the P/E ratio is a useful way to relate what you are paying for each share to the earnings the business is currently generating. What counts as a “normal” P/E will typically reflect what investors expect for future earnings growth and how much risk they see in those earnings, with higher expected growth or lower perceived risk often linked to higher P/E ratios.

Hochschild Mining is trading on a P/E of 30.2x, compared with the Metals and Mining industry average of 21.5x and a peer group average of 21.1x. Simply Wall St also calculates a proprietary “Fair Ratio” for the stock of 23.1x. This is the P/E level it might trade on given factors such as its earnings growth profile, industry, profit margins, market value and specific risks.

This Fair Ratio aims to be more tailored than a simple comparison with peers or the sector. It brings these additional company level characteristics into the assessment, rather than relying only on broad averages. With the current P/E of 30.2x sitting above the Fair Ratio of 23.1x, this model suggests the shares are pricing in relatively higher expectations than those inputs would indicate.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Hochschild Mining Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives. Narratives let you tell a clear story about Hochschild Mining by linking your view of its projects, risks and balance sheet to a set of revenue, earnings and margin forecasts and a Fair Value, all within Simply Wall St’s Community page, where millions of investors share their work. For example, one Hochschild Mining Narrative uses an optimistic Fair Value of £24.00, another uses a more cautious Fair Value of £3.50. By comparing those Fair Values to the current share price you can more easily decide how you feel about the trade off, while the platform keeps each Narrative updated as new production guidance, analyst targets or earnings results come through.

For Hochschild Mining however we will make it really easy for you with previews of two leading Hochschild Mining narratives:

🐂 Hochschild Mining Bull Case

Fair Value used in this bull case: £24.00 per share

Gap between this Fair Value and the last close of £6.50: around 73% below the Fair Value used in the narrative

Revenue growth assumption in the narrative model: 68.48%

• Assumes gold at US$4,000 per ounce and silver at US$100 per ounce, with Hochschild Mining delivering strong cash flow margins at those metal prices and all in sustaining costs of roughly US$1,850 per ounce for gold and US$24 per ounce for silver.
• Builds in future production from Mara Rosa, Royropata, Monte do Carmo and potential upside from Volcan, alongside access to cash and credit facilities to fund those projects.
• Sees long term free cash flow reaching about US$1.62b a year and applies a 10x free cash flow multiple to reach a valuation of roughly US$16.2b, which converts to a Fair Value of £24.00 per share in the narrative.

🐻 Hochschild Mining Bear Case

Fair Value used in this bear case: £3.50 per share

Gap between this Fair Value and the last close of £6.50: around 86% above the Fair Value used in the narrative

Revenue growth assumption in the narrative model: 11.79%

• Assumes Hochschild Mining grows revenue at 11.8% a year over the next 3 years with profit margins moving from 13.8% to 29.5%, and earnings reaching US$443.6m or US$0.87 per share by around January 2029.
• Applies a future P/E of 7.0x on those 2029 earnings, compares that with the current P/E of 24.1x and with the industry at 19.5x, and discounts the results back using an 8.61% rate to arrive at a Fair Value of £3.50.
• Highlights operational, permitting, cost and fiscal risks across Peru, Argentina and Brazil, and suggests that even with better earnings, the current share price of £5.13 used in the narrative sits well above the analysts’ bearish Fair Value of £3.50.

Do you think there’s more to the story for Hochschild Mining? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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