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Sirius Minerals PLC's focus to turn to financing

Published: 11:47 17 Mar 2016 GMT

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Brokers were quick off the mark, commenting on Sirius Minerals PLC's (LON:SXX) definitive feasibility study (DFS) for the York potash project.

Liberum's note was out within a quarter of an hour of the release of the DFS, with the broker reiterating its 'buy' recommendation and 38p target price.

The broker said the main differences between the DFS numbers and its projections were marginally higher capital expenditure (capex) requirements but lower operating expenditure (opex) estimates.

“Capex is expected at $3.6bn for the first 10mt [mln tonnes] vs. our $3.3bn estimate (for 13mt), whilst opex of $33/t compares to our $38/t forecast,” the broker noted.

“Applying Sirius's pricing methodology the project delivers a $15bn NPV [net present value] vs. our previous $4.6bn estimate. The key difference in our valuations remains pricing assumptions; we assume prices are set by production costs at the marginal producer, rather than nutrient value,” Liberum said.

Shore Capital, which is also a fan of the stock, said the numbers were essentially in line with its expectations.

It has suspended its risked NPV estimate while it plugs the new numbers into its spreadsheet model, but said it had no qualms about reiterating its 'buy' recommendation.

“Sirius remains very well-funded for a company at this stage, with £25mln of cash on its balance sheet as of February 2016,” the broker noted.

The money should keep the lights on while the company sets about talking to providers of structured debt and equity for the circa US$1.6bn first stage of the planned two-stage funding process; the second stage will require US$1.9bn.

John Meyer at SP Angel said the company has outlined a clear path towards initial production by 2021.

“The engineering task is now well defined and the market’s attention is likely to turn to the financing,” Meyer said.

Among the welter of broker commentary on the Budget, some was specifically on companies likely to be affected by the introduction of a sugar tax on soft drinks.

Citi, running the rule over Britvic PLC (LON:BVIC), said the move was ”unhelpful, but manageable”.

In its worst case scenario, it sees a hit of around 7% to 2018 underlying earnings (EBIT), with around one-third of Britvic's UK sales potentially set to be affected by the introduction of the tax in 2018.

“Fruit Shoot and Robinson's don’t contain added sugar and more than 60% of Britvic’s carbs are sugar free, we believe,” the analysts at Citi said.

Cantor Fitzgerald remains happy with its one penny valuation of Cyan Holdings (LON:CYAN), the wireless utility metering specialist, after the company announced a £450k fund raising in response to market demand.

“While small, it does indicated continued interest and has been undertaken at a 20% premium to last night's close, which we see as a sign of confidence,” Cyan's house broker said.

Shares were unchanged this morning at 0.15p.

Shares in Capital Drilling Ltd (LON:CAPD) were wanted this morning, advancing 16% to 31.35p, though that is still some way short of house broker finnCap's 45p price target.

The broker reckons the minerals cycle is at its bottom and while it is not possible to predict when the recovery stage will kick in, the Singapore-based drilling services company is cash-generative, with net cash and a well invested fleet.

“The group is in a strong, defensively orientated position with its customer base focused on long-term production contracts with the mining majors,” finnCap said.

“When demand returns, it has significant available equipment to deploy, and its strong operational gearing should give substantial profit recovery,” finnCap's David Buxton believes.

Morgan Stanley has downgraded InterContinental Hotels Group PLC (LON:IHG) to “equal-weight” from “overweight” as the shares close in on the broker's target price.

“We see few catalysts for performance given that the special divi has now been confirmed, RevPAR [revenue per available room] growth is slowing, and it may be left out of this M&A [mergers & acquisitions] round,” it said.

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