Noranda Income Fund Unit T.NIF.UN

RE:NIF.UN: TD has a $6.00 target!

[novnew]

Thanks for the info. Part of TD's report below
Noranda Income Fund
(NIF.UN-T) C$4.02
Solid Operating Results Overshadowed by LT Zinc Supply
Outlook
Event
Noranda Income Fund reported Q3/14 results.
Impact: NEGATIVE
Adjusted EBITDA of $27.8mm was in line with our estimate of $27.2mm,
reflecting a return to more normalized production levels after a challenging
Q2 and continued strong zinc premiums. Guidance for 2014 remains
unchanged.
Although the quarter was solid operationally, the combined impact of an
increased net debt position and the addition of stronger cautionary language
regarding the potential for significantly lower processing fees or closure of
the plant after 2017 (when the supply agreement with Glencore concludes)
overshadowed this, with the stock trading down ~18% on the day.
The more strongly worded disclosure was based on its independent
consultant’s view that the concentrate market will be tight during that time
frame and the fact that it is now just 2 ½ years away. However, nothing else
has changed, in our opinion. We have been, and continue to be, of the view
that the current $0.50 payout remains safe and the plant should retain value
after 2017 given its position on tidewater and access to very inexpensive
hydroelectricity.
In addition, we believe that the increased net debt position is transitory, with
the bulk of the increase owing to changes in working capital, with ~$35mm
of additional inventory purchased, which we expect should reverse in
subsequent quarters. Liquidity does not appear to be an issue either, with the
fund having ~$58mm of excess availability on its line of credit.
We have made minor revisions to our model, increasing our 2015 zinc
premiums to better align with current market rates, while slightly increasing
operating costs associated with treating more variable feed mix.
TD Investment Conclusion
We believe that the current supply agreement with Glencore offers a highly
attractive and safe level of income over the next two and a half years.
Furthermore, the asset should retain value beyond 2017, given the strategic
advantages of the plant. We are maintaining our BUY recommendation,
but lowering our target price to $6.00 from $7.00, reflecting lowered
multiples.