Largo Resources Ltd. – Value Analysis (US OTC:LGORF) : December 26, 2017

Capitalcube gives Largo Resources Ltd. a score of 38.

Our analysis is based on comparing Largo Resources Ltd. with the following peers – Denison Mines Corp., Continental Precious Minerals Inc., NextSource Materials Inc and Centrus Energy Corp. Class A (DNN-US, CZQ.H-CA, NSRC-US and LEU-US).

Investment Outlook

Largo Resources Ltd. has a fundamental score of 38 and has a relative valuation of OVERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative outperformance over the last year and the last month suggest a leading position.
  • It currently trades at a Price/Book ratio of (13.31).
  • LGORF-US‘s EBITDA-based operating performance is better than its peers. The price to EBITDA multiple does not imply high future growth but seems to predict the company will maintain its relatively high operating returns on the existing level of capital.
  • LGORF-US‘s median net profit margins and relatively high asset efficiency give it some operating leverage.
  • Change in the company’s annual revenues seems to be coming at the expense of earnings.
  • LGORF-US‘s return on assets currently and over the past five years is around the peer median and suggest that it does not have any particular operational advantages versus peers.
  • The company seems to be over-investing in a business with median returns.
  • LGORF-US seems too levered to raise additional debt.

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Leverage & Liquidity

LGORF-US would seem to have a hard time raising additional debt.

  • With debt at a relatively high 57.43% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 28.77%), and relatively tight interest coverage level of 0.46x, LGORF-US would have a hard time raising much additional debt. The company has a Constrained profile in terms of its ability to take on further debt.
  • Of the 4 chosen peers for the company, only 1 of the stocks have an outstanding debt balance (including LEU-US). Companies with no debt include DNN-US, CZQ.H-CA and NSRC-US.

LGORF-US has maintained its Limited Flexibility profile from the recent year-end.

  • LGORF-US‘s interest coverage is its highest relative to the last five years and compares to a low of -167.90x in 2012.
  • The increase in its interest coverage to 0.46x from -1.28x (in 2016) was also accompanied by an increase in its peer median during this period to 0.46x from -1.28x.
  • LGORF-US‘s debt-EV is greater than (but within one standard deviation of) its five-year average debt-EV of 54.66%.
  • Compared to 2016, debt-EV has remained relatively stable for both the company (57.43%) and the peer median (28.77%).

Access the detailed analysis for Largo Resources Ltd.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Denison Mines Corp. 0.1 3.74 -4582.75 44628.87
Continental Precious Minerals Inc. N/A 134.88 No interest exp 999
NextSource Materials Inc 0 2.64 No interest exp 999
Centrus Energy Corp. Class A 759.57 1.22 -5.32 -35.8
Largo Resources Ltd. 57.43 0.51 0.46 19.3
Peer Median 28.77 2.64 0.46 999
Best In Class 0.1 134.88 No interest exp 44628.87

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Company Profile

Largo Resources Ltd. operates as a natural resource development and exploration company. It is focused on the exploration and development of vanadium and tungsten projects in Brazil and Canada. In Brazil, the company currently holds interest in the maracás vanadium, currais novos tungsten tailings and campo alegre de lourdes iron-vanadium projects. In Canada, it holds interest in the northern dancer tungsten-molybdenum property located in the Yukon Territory. Largo Resources was founded on April 18, 1988 and is headquartered in Toronto, Canada.


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