{"id":58683,"date":"2011-08-16T14:01:49","date_gmt":"2011-08-16T04:01:49","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/08\/16\/newcrest-result-raises-capex-questions\/"},"modified":"2011-08-16T14:01:49","modified_gmt":"2011-08-16T04:01:49","slug":"newcrest-result-raises-capex-questions","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/08\/16\/newcrest-result-raises-capex-questions\/","title":{"rendered":"Newcrest Result Raises Capex Questions"},"content":{"rendered":"

\n\t– Newcrest's<\/span> earnings meet expectations
\n\t– Guidance less positive, capex<\/span> to remain high
\n\t– Future growth needs to be de-risked
\n\t– Two downgrades post the profit result<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tConsensus market forecasts for full year earnings from gold producer Newcrest<\/span> ((NCM<\/span>)) were for a result of a little more than $1 billion and the $1.058 billion result met expectations from the perspective of headline numbers.<\/p>\n

\n\tWhat didn't meet expectations according to UBS was the guidance offered with the result, as this has caused cuts to gold production estimates for both FY12<\/span> and FY13<\/span> and an increase in capex<\/span> expectations over the next five years.<\/p>\n

\n\tNewcrest<\/span> is now planning to spend around $9 billion on capex<\/span> over the next five years to deliver growth from new projects, a level Deutsche Bank suggests is relatively capital intensive given the growth expected.<\/p>\n

\n\tAs well, Deutsche notes the next phase of growth for Newcrest<\/span> comes with increased technical risk from the likes of Cadia<\/span> Valley East and Lihir<\/span> MOPU<\/span> as well as increased jurisdictional risk of potential delays to projects in both Papua New Guinea and Fiji.<\/p>\n

\n\tGiven the increase in capex<\/span> expectations, BA Merrill Lynch suggests FY11<\/span> was not the catalyst for Newcrest<\/span> that had been expected, but offsetting this is future production growth remains among the best in the world.<\/p>\n

\n\tA number of Newcrest's<\/span> growth projects are still in the pre-feasibility study phase and so are not included in BA-ML's base case estimates but do offer some upside risk longer-term. JP Morgan agrees, noting the impending listing on the Toronto Stock Exchange and a positive macro backdrop for gold also imply some upside potential. <\/p>\n

\n\tThis positive view sees both BA-ML and JP Morgan retain Buy ratings on Newcrest<\/span>, while both Deutsche Bank and UBS have downgraded to Hold from Buy recommendations. As Deutsche notes, Newcrest<\/span> is currently not so cheap relative to peers given the de-risking of future growth now required. <\/p>\n

\n\tRBS<\/span> Australia agrees, suggesting given the details provided in the result Newcrest<\/span> is now trading around fair value. This means no change to RBS's<\/span> Hold rating, though the broker does see potential for increases to valuations assuming the gold price stays above current consensus estimates of around US$1,530 per ounce for FY12<\/span>.<\/p>\n

\n\tWhile a comparison of five-year production charts from 2010 and 2011 shows a significant increase in targeted gold production, RBS<\/span> notes there has been a 12-month deferral of the copper production profile.<\/p>\n

\n\tOverall RBS<\/span> sees the growth profile of Newcrest<\/span> as still strong, while suggesting some near-term wins are needed to reassert the operational and development record before the market ascribes more value to the production profile.<\/p>\n

\n\tThe FNArena<\/span> database shows Newcrest<\/span> is now rated as Buy four times and Hold three times, the closest split in recommendations on the stock for some time. The consensus price target according to the database is $44.13, which implies upside of around 14% from current levels. Goldman Sachs, which is not part of the FNArena<\/span> stockbrokers universe, also downgraded to Hold today, with a price target of $48, but on the back of sharply reduced EPS estimates for the years ahead.<\/p>\n

\n\tShares in Newcrest<\/span> today are weaker and as at 1.45pm<\/span> the stock was down $1.85 or 4.6% at $38.55. This compares to a trading range over the past year of $34.78 to $43.71.<\/p>\n

\n\t
\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Newcrest delivered full year earnings in line with expectations but ongoing capex has raised some questions and prompted two brokers to downgrade ratings on the stock.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58683"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58683"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58683\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58683"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58683"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58683"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}