Our FY12 net profit forecast falls 11% to $48m following increases to cash cost assumptions. We increase our discount rate from 10% to 12% following a review of risk ratings across our coverage list. Our fair value falls accordingly by 13% to $1.40 a share. Other long term assumptions include a copper price of US$2.50/lb and an A$/US$ exchange rate of 0.80. We expect second half cash flows to exceed 1H12 which included $28m in dividends. At $0.89 a share market capitalisation is $282m. ABY is debt free and we expect cash balances to reach $120m by year end next month. Our FY13 net profit forecast of $63m implies a PE ratio of just 3x excluding cash. The fully franked $0.09 a share FY11 dividend could be comfortably repeated in FY12 implying a non-recurring gross yield of 14%. But leveraged copper exposure and limited mine life mean risks are high. Should the copper price fall, profits will rapidly evaporate, the dividend disappear and the PE ratio shoot higher. At $0.89 a share our recommendation is Accumulate. We expect the 4Q12 update and FY12 financial result to be released at the end of April.
ABY Price at posting:
75.0¢ Sentiment: LT Buy Disclosure: Held
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