Hummingbird Resources (LSE: HUM) is a gold mining company with operations in Liberia, Mali, and Guinea. It’s a young company with a £68m market-cap and 8.6p share price.

Like many smaller companies, it’s struggled to grow since the pandemic. High interest rates and throttled demand means the price has plummeted from its five-year high of 40p in mid-2020.

But its revenue belies its low price. At £127m, it’s almost double its market-cap, giving it an excellent price-to-sales (P/S) ratio of 0.5 times. What’s dragging down the price is negative earnings. With expenses outweighing gross profit by 30%, most recent earnings came in at a £24m loss. That puts its current earnings per share (EPS) at -3p.

So what makes me think it has value? Well, for one, it’s trading at 98% below fair value based on future cash flow estimates. So it’s doing what small companies should be doing, bringing in tons of cash and spending even more. As long as today’s expenses equate to profit tomorrow, it’s all gravy. 

And analysts seem to think they will. The price-to-book (P/B) ratio’s also good, at 0.8 times. If those estimates are accurate, it’s equivalent to buying £1 shares for 80p.

So what’s the catch? Well, it’s only forecast to return to profit next year. And that’s IF the current economic recovery continues. After several stagnant years, gold took off in 2023 and continues climbing. But fears of an impending recession still linger, which could send revenues tumbling again.

I don’t think that will happen, so I’m happy to snap up these bargain shares while they’re cheap.

M&C Saatchi

M&C Saatchi’s (LSE: SAA) a well-known and established advertising firm founded by the brothers Charles and Maurice Saatchi. It’s the parent group to now-private Saatchi & Saatchi, once a FTSE 100 constituent on the London Stock Exchange.

Having reported a £3.53m loss in its latest earnings results, it’s currently unprofitable. Revenue dipped 1.9% in its latest full-year 2023 earnings results released in April.

But sales are high, compared to its market-cap, with a P/S ratio of 0.6 times. Admittedly, it’s increased from 0.4 last year, which isn’t the direction I want to see it going. Still, it’s below the industry average and Saatchi’s a company with the clout to bring in sales. With cash flows expected to recover in the coming 12 months, the share price is estimated to be undervalued by 53%. 

So with all those factors combined, the once-king of advertising is expected to return to profit this year. Earnings are forecast to reach £14.6m by 2025, despite the ongoing drop in revenue.

It’s rare to find proven talent like this in a slump, so grabbing such stocks can be a once-in-a-lifetime opportunity. But like anything in life, nothing’s guaranteed and many factors are beyond the ability to forecast. Still, I see great value here and strong evidence of a recovery — and I don’t want to miss out on those potential returns.

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The proof of the pudding is in the eating for shareholders in Hummingbird Resources (LSE:HUM), a gold production, development, and exploration business. The share price has more than doubled this year, and its rapid growth shows few signs of slowing.

However, long-term investors are still waiting for a positive return. Over five years, the share price is down 54%. So, is this penny stock a bargain buy for me at today’s price of 14.68p per share? Let’s explore.

A golden opportunity?

Hummingbird’s operations are located in West Africa. Its two flagship gold projects are the Yanfolila mine in Mali and the Kouroussa mine in Guinea.

Yanfolila is already operational and the company expects total gold production will more than double after Kouroussa commences its first gold pour by the end of Q2. The business also has a controlling interest in the Dugbe Gold Project in Liberia.

The rising gold price is a key tailwind for the firm. Spurred by the global banking crisis that has claimed Silicon Valley Bank and Credit Suisse among its victims, investors have flocked to the precious metal in search of safety.

And growing demand isn’t confined to retail buyers or institutional players. Central banks continue to purchase huge quantities to boost their gold reserves. In that context, I think there’s a good chance the yellow metal could hit an all-time high this year.

Encouraging progress

However, the climbing gold price alone can’t explain a three-digit percentage gain in the Hummingbird share price. For me, the core factors behind the astronomic growth can be found in the company’s recent trading update.

Confirmation that construction work at Kouroussa is nearing completion is a positive development. No doubt shareholders’ hopes are buoyed by the prospect of production doubling, reduced costs, and the risk diversification that the firm’s Guinean operations could offer.

Yanfolila’s numbers look promising too. Gold poured in during Q1 2023, soaring to 27,262 ounces, up from 15,548 ounces in Q1 2022. What’s more, EBITDA of $17.5m represents a 59% improvement quarter on quarter.

So, is this penny stock a ‘no-brainer’ buy for my portfolio?

Risks

I wouldn’t go quite that far. The group’s net debt of $111m is a little high for my liking and the company is a small operator in an industry where economies of scale matter. In addition, there are political risks to contend with in the jurisdictions where Hummingbird has a presence.

Plus, I’m wary that I could be paying too much by buying shares today. After all, the share price has doubled in just a few months. Recent investors could take this opportunity to lock in profits, which might limit further growth.

Should I buy this stock?

Despite the risks, I believe there are good reasons to be bullish on Hummingbird shares following years of disappointing results from its Yanfolila mine.

The company’s performance in Mali shows signs of improvement and if all goes to plan with its Kouroussa operations, this could be one of the most exciting penny stocks in the UK market.

If I had some spare cash, I’d enter a small position today.

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Further progress

Reporting on Wednesday was gold exploration and development company Hummingbird Resources (LSE: HUM). It is on track and on budget to deliver first gold production by the end of 2017. This follows a positive quarter, with the company making progress with its construction operations. It has also entered into an agreement with African Gold Group to develop its gold project. This could ultimately increase both the annual production output and the life of the mine at a similar operational cost.

While Hummingbird Resources is currently a lossmaking business, production is expected to propel it into profitability. This could boost investor sentiment in the short run – especially since the market does not seem to have priced in its future financial performance. The company trades on a forward price-to-earnings (P/E) ratio of just 9, which suggests that it could offer upside potential.

With the price of gold rising already in 2017, its outlook appears to be positive. Concerns surrounding North Korea could propel its price even higher. Similarly, concerns about the global economic growth outlook may lead more investors to purchase gold. This would clearly be good for Hummingbird Resources and may help it to generate higher profitability as well as a rising share price over the long run.

Turnaround potential

Also offering a share price below £1 at the present time is Gem Diamonds (LSE: GEMD). It trades at 78p versus 38p for Hummingbird Resources and also appears to have a bright long-term future.

Of course, Gem Diamonds is in the midst of a somewhat challenging period. Its bottom line is due to come under pressure in the current year, with a forecast fall in earnings of 83% expected by the market. It has struggled to cope with falling small gem prices and in response has put its new mine in Botswana up for sale.

While this could mean that the stock is relatively volatile in the short run, it is due to post a successful turnaround in 2018. Its bottom line is expected to rise by 459%, which puts it on a forward P/E of just 8.7. This suggests that it offers a wide margin of safety and could be worth buying for the long run.

Certainly, Gem Diamonds has a somewhat unclear future. Diamond prices may fall and this could negatively impact its financial performance. However, with a low valuation and upbeat forecasts, it appears to have an attractive risk/reward ratio.

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Hummingbird has been developing its Yanfolila gold project in Mali, and it’s on schedule and within budget with first gold pour expected by the end of 2017. And in Wednesday’s first-half results announcement, there were plenty of indications that the firm should make it through to profitability just fine.

Following the acquisition of 5% of the Yanfolila project from a minor firm that held an interest, Hummingbird now owns 80% of it — and the Mali government has upped its stake to 20% for an investment of $11m. In addition, there was approximately $60m in cash on the books at 1 September, though there’s a fair bit of debt too.

Turnaround

We’ve had years of losses building up to this expected first year of gold production, and there’s a further loss on the cards for the full year this year — a modest 1.36p loss per share is forecast. 

But that should swing around in 2018, with analysts predicting EPS of around 3.2p per share . That would put the 32.25p shares on a P/E multiple of only around 7.8 — barely more than half the FTSE 100‘s long-term average.

While we’re in an economically uncertain phase I don’t see much risk of a gold price fall. But politics could be a problem — the military coups in Mali in 2012 suggest anything could happen in the coming years.

But gold is gold, and Hummingbird could be a good way to get in on it.

Road to recovery?

K3 Business Technology Group (LSE: KBT) is a stock that I think could be set for a turnaround of a very different nature. The company provides end-to-end business software systems for the retail, manufacturing and distribution sectors, and its shares were climbing nicely — they reached more than 350p in late 2016.

But a couple of profit warnings — the most recent on 16 May this year — sent the price nosediving, and we’re looking at just 159p as I write. The company failed to secure some major deals it was expecting, and May’s announcement told us that results would be “significantly below current market expectations.”

We had those results Wednesday. They revealed an adjusted pre-tax loss for the 12 months to 30 June of £2.63m (from an adjusted profit of £8.8m a year previously) and an adjusted loss per share of 7.4p (against previous EPS of 23.5p). Net debt stood at £6m.

Recovery prospects

But I’m seeing encouraging hope for recovery, with the company already changing its strategy “for a return to profitability and sustainable growth.” That includes focusing on the SME market and its own products, and looking for recurring income. There’s an ongoing review of the firm’s resources too, and reorganisation has produced annualised savings of around £3.7m already.

The firm’s year-end is changing to November because of its strong seasonal trading, and analysts are actually expecting to see EPS of 18p, which would give us a P/E of around nine — but a big fall pencilled in for 2018 would drop EPS to only around 8p and drive the P/E up to 20.

But K3’s rapid response makes me think that’s too pessimistic.

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The main routes by which investors gain exposure to gold are exchange-traded gold funds such as the $33bn SPDR Gold Trust (NYSE: GLD.US) ETF, which has climbed 0.7% to $121.41 over the last week, leaving it up by 2.9% so far this year. Meanwhile, a London-listed alternative, Gold Bullion Securities (LSE: GBS), has climbed 0.5% to $121.01 over the last week, leaving it up by just 0.7% so far in 2014.

Gold equity news

In the equity markets, a number of small-cap gold miners have reported news that’s triggered strong gains this morning.

Liberian gold explorer Hummingbird Resources (LSE: HUM) is up more than 8% to 57p, at the time of writing, after announcing a $20m deal to acquire all of US miner Gold Fields‘ assets in Mali, which will give it ownership of the Yanfolila Project, which has a mineral inventory of 1.8 million ounces of gold at a grade of 2.8g/t.

Hummingbird plans to deliver first gold by the end of 2015, at an all-in sustaining cost of around $700/ounce, well below the current price of gold.

Elsewhere, Condor Gold (LSE: CNR) was up 6.5% to 88p in early trade today, after reporting trenching results from its La India project in Nicaragua. The firm said that the original 1,400m plan has been extended to 3,500m, following positive results from the first 2,100m. These have confirmed Newmont Mining’s 2001 findings, and uncovered new near-surface gold mineralisation in the same area, including a 4m wide section of quartz in a nearby artisan pit wall with a grading of 16.4g/t gold, within 45m of the original Newmont trench.

Finally, takeover target Bullabulling Gold (LSE: BGL) climbed nearly 4% in early trade, after reporting that metallurgical testing had indicated the potential to reduce the amount of cyanide and lime required for gold production by up to 87% (lime) and 28% (cyanide). The firm says that these findings have the “potential to significantly reduce gold production costs” from the project.

The post Gold Edges Higher On Growth Fears; Condor Gold PLC, Hummingbird Resources Ltd And Bullabulling Gold Ltd Outperform appeared first on The Motley Fool UK.