Credit Suisse has kept a Neutral rating on Silver Wheaton Corp. (SLW.TO) but revised its estimates and raised its Target Price to $44 from $40.
Event: "SLW reported adjusted 4Q10 EPS of $0.32, in-line with our estimate (consensus of $0.31). Adjusted EPS excludes a positive $0.03 impact from income tax recovery ($0.02) and gain-on-sale ($0.01). Revenues of $150Mln were slightly lower vs. our $156Mln on lower silver sales (5.5Moz vs. our 5.6Moz) and lower gold sales (2.6Koz vs. our 6.7Koz)."
View: "In-line quarter. Attributable silver equivalent production/sales of 6.3/5.7Moz was in-line, as was FY11 attributable silver-equivalent production guidance of 27-28Moz (implying 13-17% YoY growth). The SLW growth story remains intact, with FY15 attributable silver-equivalent production of 43Moz."
Catalyst: "Inaugural dividend modest, but should grow over time. SLW announced a modest inaugural dividend of $0.12 (payable quarterly; 0.3%). We believe SLW's strong balance sheet and high-margin/fixed cost business model is in a strong position to grow the dividend in the future without risking management's ability and desire to enter into accretive silver stream transactions. SLW currently has $428Mln in cash and a fully undrawn $400Mln credit revolver to provide liquidity."
Valuation: "Looking for attractive entry points. We increase our TP to $44 (from $40) based on an increase to our NAVPS to $25.58 (from $22.36) following reserve estimate adjustments and mark-to-market of SLW's investment portfolio. Our TP is based on a 60/40 weighting of 1.8x our cash-adjusted NAVPS of C$25.34 and 20x FY11E CFPS ($1.85). We believe SLW will trade at a premium multiple to the group due to its above-average growth profile and fixed-cost structure, which allows for a rising silver price to flow directly to the bottom line. Although SLW shares are up 34% in the past month (+200% in the past year), we continue to look for attractive entry levels for the stock. Our FY11/12E EPS goes to $1.65/1.41 (from $1.58/1.50) reflecting revisions to expected production in FY11/12 at Peñasquito and Barrick operations.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
