Macquarie upgrades Sandfire Resources earnings forecasts and price target

Published at Jan 25, 2017, in Features

After reviewing Sandfire Resources’ results for the three months to December 31, 2017 analysts at Macquarie have increased their earnings estimates for fiscal years 2017 and 2018 by 11% and 4% respectively.

Sandfire still has scope to expand production at its DeGrussa copper gold project located in Western Australia. The company is also looking to develop the nearby Monty project, one of the highest grade VMS (Volcanogenic Massive Sulphide) deposits discovered anywhere in the world in the past three decades.

With regard to today’s upgrades, the broker also took into account lower cash costs and quotational pricing which will potentially drive higher cash generation and enable the early payment of its $50 million debt facility.

Macquarie sees the Monty feasibility study which should be released in the second quarter of calendar year 2017 as a potential share price catalyst. It has factored in production in the order of 20,000 tonnes from Monty in fiscal 2019.

With improved operational performances and other potential positive catalysts on the horizon the broker upgraded its target price from $7.00 to $7.50.

40% increase in profit forecast in fiscal 2018

While Sandfire is forecast to generate substantial profit growth in fiscal 2017, it is really a 2018 story with the company generating stronger revenues off a similar cost base, resulting in net profit increasing from $85 million to $118 million based on Macquarie’s forecasts.

This represents earnings per share of 74.6 cents, indicating that Macquarie’s price target implies a PE multiple of approximately 10.

The broker is also expecting Sandfire to pay a dividend of 22 cents in fiscal 2018, implying a yield of more than 3% based on the company’s current trading range, and making it one of few companies operating in the mining space to pay a dividend.

It should be noted that broker projections and price targets are only estimates and may not be met. Also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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