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The only good news is this:
Breakwater Resources Ltd. |
Orest Wowkodaw, CA, CFA, 1.416.869.3092
BWR : TSX : 2.55 | 1,067.7M | Buy , Target 3.70 ↓
• Q3/07 results disappoint; but timing can be everything
Event
Breakwater reported relatively disappointing Q3/07 EPS of $0.02, well below our estimate of
$0.10 and the First Call consensus of $0.11. While the company did experience operating issues
at Myra Falls, the bulk of the earnings miss can be attributed to a timing difference between
shipped inventory and revenue recognition.
Impact Slightly negative.
Action
Despite the disappointing results, we are maintaining our BUY rating based on the company’s
growing production profile, attractive relative valuation, and rising cash position. We have
reduced, however, our target price to C$3.70 (from C$4.00) to reflect our slightly-reduced
estimates.
Our C$3.70 target is based on 6.0x our 2008 CFPS estimate plus year-end 2007
forecast net cash of $0.31 per share. With the ramp up at Langlois, the restart at Mochito, and
an expected improvement at Myra Falls, we anticipate financial results to markedly improve in 2008.
Valuation
Breakwater is currently trading at 9.9x and 4.6x our 2007E and 2008E CFPS and at a 2.9%
premium to our 8% NPV valuation of $2.48 per share, which compares favourably to our midcap
base metal producer coverage universe average of 10.1x, 7.4x and a 23.7% premium to
NPV.
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