Is now the time to buy into Gemfields PLC (LON:GEM)?
Well, if you accept the analysis of the broker Peel Hunt, the answer to that question is a resounding yes.
Reiterating his ‘buy’ recommendation on the stock in the emerald and ruby miner and marketer, Peel’s analyst Michael Stoner raised his valuation to 93p from 78p.
That new target, based on the long-term outlook for the luxury goods sector, suggests the stock has headroom to advance a further 88% from the current price of 49.5p.
“The company and the wider luxury goods markets should benefit from a strong US economy and the current risk-on trade,” said Peel Hunt’s Stoner.
“These tailwinds outweigh the short term negative impact of the issues in India.”
Gemfields’ flagship asset is the Kagem emerald mine in Zambia, while its other mine, Montepuez, took the firm into ruby production.
Last summer it started drilling on the Dogogo South Block in Ethiopia, while it also expanded the size of its team in Colombia. Both are earlier stage emerald projects.
According to Peel Hunt, Gemfields will generate sales of US$187mln this year, giving underlying earnings (EBITDA) of just under US$62mln.
Turnover will rise to US$227.7mln and the then US$270.8mln, giving, respectively, operating profits of US$86.4mln and US$104mln.
“Our forecasts suggest that shares are now reaching a level which implies a 37% decline in rough emerald pricing versus an already conservative Peel Hunt price deck,” analyst Stoner told clients.
“This appears an aggressively negative assumption given Gemfields’ dominant position in the gemstone market. As we have said previously, it benefits from being a price-maker rather than price-taker.
“By that we mean its large market share, and ability to adjust the stone mix at auctions, allows it to tailor its offerings to meet demand, thus smoothing or influencing prices through the cycle and allowing it to deliver consistent price performance.”