Analyst Actions: Credit Suisse - "3 Very Simple Reasons Why We Think Labrador Iron Mines Looks Cheap"
3 very simple reasons why we think LIM.TO looks cheap; Raising Estimates.
LIM.TO is expected to provide the market with an operational update in coming days. In anticipation of there being a positive tone to this announcement, we have revisited our LIM.TO valuation providing 3 very simple reasons why we think this stock looks cheap. 1) Statistical iron ore price correlation suggests that there is 39% equity upside, 2) Our equity model for LIM.TO is more conservative than the street, and having run four different price decks through our coverage universe we show that LIM.TO has an average 104% upside, compared to the sector average (ex-LIM) of 35%, and 3) A HOLT Metals & Mining valuation puts the sector at i) 2H 2008 P/B levels (the iron ore price was US$60/t back then), and ii) an implied iron ore price materially below the top end of the cost curve.
Since launch of coverage LIM.TO has underperformed the peer group by 40% - largely a function of LIM.TO's second largest holder moving from 19.3% to 4.7%. The story has not changed otherwise, and we believe this stock is unsustainably cheap.
LIM.TO is expected to release a DecQ11 production update within the next few days. We expect to be told that LIM.TO exported three cargos in 2011 for a total of around 0.51mt of sales. Production volumes will be higher. More relevant, and positive, would be resolution of the 2012 port arrangements which at this stage are somewhat uncertain. Realised price and cash cost information will not be provided until the financials release in February.
No change to our C$8.30/sh target price or OUTPERFORM rating, however we note that the official house price deck is currently being reviewed with changes to be implemented in the near future. Our 2012 EPS estimates remains unchanged. Our F2013/F2014 EPS estimates are raised to C$1.54/C$2.37 (from C$1.40/C$1.88).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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