Same with Bell Potter - here is a summary of their update. Looking good all the way...
Leveraged to improving mining capex outlook
Boart is the largest global exploration drilling company with >20% marketshare, making it highly leveraged to a turnaround in exploration activity as mining capex begins to pick-up over the next few years. UBS expects a +45%y/y rise in mining related capex in 2010, supported by higher commodity and metals prices and a recovery in global economic growth. This should also be underpinned by the
increased ability of junior miners to undertake exploration and development funding as access to debt and capital markets improves after a tough 1-2 years.
Strong forecast earnings growth
Our forecasts see underlying earnings rising significantly to reflect a strong cyclical recovery from FY10. We have also increased our US$ forecasts for a weaker US$, although this sees only minor upgrades to our A$ EPS of +2% from
FY10+. FY10 EBIT becomes c.US$140m (vs consensus of c.US$110m) and is struck off a c.30% increase in revenue over FY09 as well as a higher margin.
Trading at 40% discount to peers
Based on our numbers, Boart is currently trading at an undemanding 7x FY11 EBIT, reflecting a 40% discount to its global peers (see within). We believe this does not properly reflect the recent removal of capital risk (net debt EBITDA <1x) and Boart’s strong earnings leverage to a recovery as end market conditions continue to show signs of improvement.
Valuation: 12-month Price target A$0.45 (unchanged)
Our 12-month price target is DCF-based and implies 9x our FY11 EBIT estimate.
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