Analyst Actions: Northland Resources Upgraded To "Outperform" at Credit Suisse

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Credit Suisse asks: "How cheap is cheap enough?; UPGRADING to OUTPERFORM (from Neutral)."

It said: "Both equity and debt investors are keen to understand the risks around NAU's current financing deals ($250mn equity + $125mn debt), the potential outcomes, and how they should be valuing this business. NAU is not a name for the faint hearted, but we have upgraded our recommendation to OUTPERFORM.

"Although this report is essentially a Northland Resources case study, it contains a number of valuation ideas that are likely to be of interest to a broader iron ore investor base.

"Our recently revised C$0.40/sh TP was based on NAU successfully completing the $250mn equity raising at C$0.33/share, but with the equity currently trading at less than half of this level we felt it was prudent to revisit the valuation story. A range of different valuation techniques are presented in this report, with the intention of offering some insight into how equity investors, strategic buyers and corporate buyers might value this stock.

"Our analysis suggests that we would need long term view on iron ore at $130-140/t in order to get excited about valuation; however, we point out that a likely buyer of NAU may have little regard for financial analysis. The Swedish government is a backer of this project, and we believe that it does not want to see it fail. Nearby state-owned LKAB has huge potential synergies with NAU, could benefit even if it bought NAU just to shut it down, and LKAB's last reported balance sheet showed $2.75bn in cash. Although government intervention is probably a last resort, we think it offers a valuation floor for this stock at or around current levels."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright (C) 2016 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

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