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Canaccord lifts Gem Diamonds price target as large diamonds boost valuation
Canaccord Genuity lifted its price target on Gem Diamonds to 120p from 95p on Friday, keeping the stock at 'speculative buy', saying the frequency of the recovery of large stones has been greater than it expected.
This means that revenue should be above the brokerage's initial forecasts. Canaccord said it has reworked its forecasts, building in additional revenue of $55m in FY18 to reflect three +100ct stones and the 910ct recovered this year.
"While near-term strength in the ZAR (below 12:1 to the USD for the first time since mid-2015 due mainly to a weaker USD, but also helped by political changes in South Africa) is a headwind given it boosts USD costs, our valuation rises and pushes our price target to 120p (from 95p).
"We have reduced the weighting of the PE and EV/EBITDA measures in our price target setting to reflect our view that the 910ct may not be repeated and thus FY18 EPS may be 'artificially' boosted, but we continue to assume that the incidence of +100ct Type IIa diamonds will continue to increase."
Gem Diamonds made two announcements of diamond discoveries this month. The first was "an exceptional quality" 910 carat, D colour Type IIa diamond while the second was an "exceptional quality" 149 carat, D colour Type IIa diamond, both form the Letseng mine.
Gem Diamonds shares closed up 0.4% at 92p.