Ann: Financial Results Presentation Full Year Jun, page-7

re: Ann: Financial Results Presentation Full ... GSJBW 12 month price target lowered from $7.60 to $6.25 based on results, with key risks being POG and underperformance at Challenger (prob a certainty). The more this one underperforms the more likely it is going to be swallowed by a bigger co.


"We maintain our Buy rating, but have reduced our 12 month DCF and P/E based price target to A$6.25 (was A$7.60). We forecast moderate earnings growth from FY12 into FY13 then again into FY14; however the company has delivered a series of production downgrades.

We flag the presentation from 12 months ago at Diggers and Dealers, where the company pointed to FY13E production well in excess of 300koz Au equivalent(including a small contribution from Arqueros) and as we stand, the company guidance for FY13E (just 12 months later) is now at 200-220koz Au. As a result, in our view, KCN has gone from a very inexpensive volume growth play, to a company which is ex-growth (at least for FY13E) and now exposed to the gold price as a means to drive earnings. With that in mind, we retain the Buy rating, given our preferred exposure to the gold price, and the FY12 dividend yield of 4.2% (forecast to rise in FY13E).

The company provided FY13 guidance today targeting 200-220koz Au (we were 218koz, now 200koz). The guidance is made up of 120-130koz Au at Chatree and 80-90koz Au at
Challenger. The company highlighted that the year would commence slowly from a production perspective, with better volumes in 2H.