Savannah Resources Plc's (LON:SAV) Path To Profitability

We feel now is a pretty good time to analyse Savannah Resources Plc's (LON:SAV) business as it appears the company may be on the cusp of a considerable accomplishment. Savannah Resources Plc engages in the exploration and development of lithium properties in Portugal. On 31 December 2023, the UK£65m market-cap company posted a loss of UK£3.5m for its most recent financial year. As path to profitability is the topic on Savannah Resources' investors mind, we've decided to gauge market sentiment. In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

See our latest analysis for Savannah Resources

Savannah Resources is bordering on breakeven, according to some British Metals and Mining analysts. They anticipate the company to incur a final loss in 2025, before generating positive profits of UK£45m in 2026. The company is therefore projected to breakeven around 2 years from today. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 63%, which is rather optimistic! If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

We're not going to go through company-specific developments for Savannah Resources given that this is a high-level summary, though, take into account that typically a metal and mining business has lumpy cash flows which are contingent on the natural resource mined and stage at which the company is operating. This means, large upcoming growth rates are not abnormal as the company is beginning to reap the benefits of earlier investments.

One thing we’d like to point out is that Savannah Resources has no debt on its balance sheet, which is quite unusual for a cash-burning metals and mining company, which usually has a high level of debt relative to its equity. This means that the company has been operating purely on its equity investment and has no debt burden. This aspect reduces the risk around investing in the loss-making company.

Next Steps:

There are too many aspects of Savannah Resources to cover in one brief article, but the key fundamentals for the company can all be found in one place – Savannah Resources' company page on Simply Wall St. We've also compiled a list of essential factors you should further research:

1. Historical Track Record: What has Savannah Resources' performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Savannah Resources' board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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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.