TD Target $10.50 Overall, I am pleased with the quarter results - pretty much as expected but beat expectations by a decent margin. Here is what TD had to say:
Steven Green, CFA
Daryl Young, CFA, CA
Event
Alio Gold reported Q2/17 financial results; production was previously released.
Impact: POSITIVE
Adjusted EPSof $0.10 was above our estimate of $0.05 and consensus of
$0.03, reflecting lower-than-expected costs and depreciation. CFPS (pre-working
capital) of $0.25 was also above our estimate of $0.14 and consensus of $0.15.
Production
of 22,011 oz was previously released; however, costs of $740/oz were
not previously announced and came in well below our estimate of $891/oz. The
company calculates Q2 AISC of $954/oz.
Free cash flow
(defined as OCF pre-working capital changes less total capex)
was positive $2.8mm, reflecting the continued lower costs offset by additional
capex under the new mine plan.
Balance sheet improves:
Net cash decreased to $35.9mm from $39.2mm
previously, with the positive FCF generation offset by $6.2mm of negative working
capital movements. We estimate pro forma cash of $73.9mm, including net
proceeds from the C$50.4mm equity financing completed subsequent to quarter-
end. The company also received inflows totalling $6.8mm related to the sale of
Caballo Blanco and collection of outstanding VAT.
We have incorporated the Q2 results, made minor revisions to our forecasts, and
also included the C$50.4mm financing. Our NAV declines to C$9.31/share from
C$9.76/share previously, reflecting dilution from the equity financing which was
completed at a significant discount to NAV.
TD Investment Conclusion
We are maintaining our BUY recommendation, but lowering our target price
to C$10.50 from
C$11.50 previously, reflecting the dilutive impact of the equity
financing and a change in our target price methodology.
With the optionality of
the producing San Francisco mine and the new management's focus on surfacing
value for Ana Paula, which has favourable economics, we continue to believe that
there is value to be surfaced.
We view the company as a potential acquisition target