By Jason Fittler
NCM is our preferred large-cap gold exposure because of the diversity in its operations base, competitive cost structure and growth options. Management has also shown a good understanding of the cost drivers in the company’s business and an ability to manage them down where possible.
Our target price is currently A$33.57ps. We believe there is an upside to earnings and valuation based on the potential project development pipeline, but we have chosen to take a relatively conservative approach until feasibility studies are completed.
Key downside risks to our target price are a decline in the gold market, a stronger AUD and capital expenditure. Upside risks stem from a stronger bullion price, a weaker AUD and exploration success in Fiji and PNG.
NCM’s result beat the market’s expectations and it managed to generate another A$1bn in cash flow in 2009. The operational cash flow, along with the equity raising during the year, left gearing at 2%. We believe NCM has the ability to fund developments without going above its long-term gearing target of 15-20%.
The company reported a 2009 statutory profit of A$248m and an underlying profit of A$483m, which was better than our forecast of A$464m. A dividend of 15c was declared, compared to 10c in the previous period.
Relative to our previous forecasts, production is somewhat unchanged with lower than previously estimated production from Ridgeway being offset by higher production from the Telfer underground.
I am looking to buy this stock below $29.00 and hold for capital growth in the coming 12 months.
Please call me on 07 4771 4577 if you would like more information on Newcrest (NCM) .