Investec has upped its price target for Gemfields (LON:GEM) after the coloured gems specialist’s third quarter numbers demonstrated progress across its portfolio.
The broker’s price target is whacked up 25% from 30p to 37.5p, as the broker has plugged in new projections for the prices Gemfields is likely to obtain in its high quality emerald auctions.
Other changes to Investec’s valuation model include tweaks based on the latest balance sheet position plus some modifications prompted by a clearer understanding of how the recently acquired Faberge business contributes to the group’s financials.
The broker said the Faberge business is contributing to Gemfields’ indefatigable efforts to persuade the world there are gems other than diamonds, and although the Faberge business is currently loss-making, Investec expects it to break-even by 2016.
The core part of Gemfields’ business is the Kagem emerald mine, and though the update on the third quarter was a bit of a mixed bag, Investec warns against reading too much into a single quarter’s performance.
“The recent record sale prices for high value emeralds give us confidence that the company will be able to secure higher long term prices. We also see considerable upside potential at Kagem, where bulk sampling is progressing that could well support significant other sources of emerald production, boosting long term output,” the Investec team said.
As for the future, operations at the Montepuez ruby mine in Mozambique are ramping up, and the start of ruby auctions, pencilled in for the first half of next year, could provide a major positive step change for the company, in Investec’s view.
After bumping up the target price to 3.5p above the current share price, Investec’s rating on the stock remains at ‘buy’.