RBC Report Premier Royalty Inc.
Just out of the gate and already in play
Our View: Premier Royalty ("Premier") is one of the more recent royalty
entrants into the space. Although the company's market value is dwarfed
by its larger peers, Premier is well positioned to provide meaningful
growth through royalty/streaming acquisitions. With a portfolio of cash
generating royalties and support of its largest shareholder, Sandstorm
Gold ("Sandstorm"), Premier appears well positioned financially and
technically to pursue accretive growth opportunities.
Key Points:
Initiating coverage with an Outperform: Premier offers investors with
potential upside through the acquisition of new royalties and/or streams
and through a likely takeover by Sandstorm, a royalty/streaming peer
which recently acquired a 60% interest in the company. With a well funded
balance sheet and support of its largest shareholder, Premier appears
well positioned to provide investors with meaningful growth through the
pursuit of royalty and potentially smaller streaming opportunities
Growing portfolio of cash flowing royalties: The company's portfolio of
six cash flowing royalties is expected to provide Premier with 6,600 ounces
of implied gold equivalent sales on average over the next three years. We
believe with C$34 million in cash on hand and corporate support from
Sandstorm, further growth is likely over the next few years. Should the
company be able to consummate deals at terms similar to its previous
transactions, we expect Premier will be able to generate meaningful longterm
value for investors.
Sandstorm Gold ownership a positive attribute: With Sandstorm owning
~60% of Premier and focused on increasing the size and scale of its own
streaming portfolio, we believe Sandstorm could be in a position to funnel
smaller royalty opportunities to Premier. In addition, Sandstorm could
potentially backstop future equity issues and provide technical support.
Takeover the likely end game: As we have seen in the royalty space in
the past, smaller entrants are usually taken over when they begin to
reach critical mass and compete directly with their larger peers. Although
Premier is unlikely to compete directly with Sandstorm, we believe that
once Premier has reached a critical mass (market value of at least $250
million), it is likely be absorbed by its majority owner.
Initiating with a C$2.00 price target: We value Premier on a hybrid P/
NAV and P/CF basis. Applying a 1.75x multiple to the company's NAVPS
of C$1.20 and 17.5x 2013E CFPS of C$0.12, we derive our C$2.00 price
target. The multiples used to value Premier are towards the lower end of
the range of multiples used to value the royalty and streaming companies
within our coverage universe.