who is buying, page-7

From the cover
Initiating coverage with a BUY and +55% to PO $3.06/sh
We initiate coverage on OM Holdings (OMH) with a BUY rating and PO of
A$3.06/sh, +55% upside potential. The PO is based on parity to our base case
NPV (WACC 11.0%). Near term upside risk with a potential 10mt resource
upgrade by end 2008, which would raise NPV to A$3.94/sh (+$0.88/sh), or +100%
upside potential.
Pure play manganese: a rare option in a bullish market
OMH is the only global pure listed manganese play. We are bullish Mn with
current elevated Mn ore prices sustainable until at least 2010 supported by high
marginal cost of production of low grade Chinese & Russian ore. The biggest
risks to this recommendation is Mn price and OHM’s ability to deliver growth;
however even our bear case valuation is 16% above the current share price.
Excellent earnings & cash flow growth; net cash position
OMH is not just a leveraged exploration play, it is an ore & alloy producer. The
mine is producing above capacity having overcome typical commissioning issues
in 2007. OMH has pre-announced 1HCY2008 NPAT (due August 27) of at least
A$85m (ML 1H NPAT A$90m). We forecast CY2008E & 2009E NPAT of A$182m
/ $233m, placing OMH on 4.9x / 3.8x PER, a 26-70% discount to its nearest global
peers Eramet and Mineral Resources. 2007-2010E NPAT CAGR is 76%pa.
Conservative Valuation: Bull case +150% upside to NPV
OMH is trading -35% vs our base case NPV of $3.06/sh. We view this NPV as
conservative as it only includes an 8-year mine life, the rejects plant (Board
Approval Q32008) & the Sinter plant (Board Approval due Q42008). If OMH
delivers the 10mt resource upgrade at Bootu Ck and development at Renner
Springs, our NPV (Bull Case) would be $4.98/sh, +150% from current share price.
OMH has cancelled the planned HK dual listing due to share market volatility. In
our view this listing was purely a measure to increase stock liquidity.