Canaccord this morningHudBay Minerals (HBM : TSX : $15.90) - Buy - Target: $19.75
Gary Lampard
Comment: HudBay Minerals Q1/06 financials
HudBay Minerals (HBM) reported Q1/06 financial results on May 12. Net
earnings were C$76 million or C$0.89 per basic share. Operating cash flow
before working capital changes was C$78 million or $0.91 per basic share.
We have re-based our financial model post the results. We have downgraded
2007 diluted EPS and CFPS by 7% and 5%, respectively, to C$2.63 and C$3.17.
We recommend that investors continue to accumulate HBM for balance sheet
and earnings leverage to current strong zinc and copper prices. We have
increased our 12-month target price from C$18.50 to $19.75 per share, based
on 5.5x 2007 operating cash flow, plus end-2006 net cash, and assuming
early exercise of 2009 warrants. The next catalysts for the company, could
be related to an early-June Flin Flon site visit. We expect the next
exploration update in Q3/06. Q2/06 financial results in mid-August will be
impacted by Q2 copper smelter and zinc plant shutdowns as flagged by the
company. Non-GAAP zinc cash costs could be significantly higher based on
lower copper sales. We expect Q2/06 financials will likely remain clouded
by the use of the treasury stock method for dilution purposes. Until this
issue is removed, we would prefer to focus on absolute net earnings, before
potential tax recovery, and operating cash flow numbers. From the market,
we expect continued zinc and copper price forecast upgrades.