**WHAT IS ABER WORTH?****Below is an anlaysis by R Goldie of First Associates and he is long time sell side resourse analyst and his research got me into ABER: (DeBEers cash flow for this year is 7 BLN!....)
WHAT IS ABER WORTH?
(a) Dia Met is the company most closely comparable to Aber. Dia Met’s shares
are trading at 8.66 times sustainable cash flow (after allowing for servicing of
project debt). Therefore, that part of ABZ which represents the Diavik project is
worth about 8.66 divided by (1.12 x 1.12 x 1.12 x 1.12) , or 5.51 times sustainable
cash flow (i.e Dia Met’s cash flow multiple, discounted back to the present at
12% p.a.).
Now, the sustainable cash flows from Diavik should be about $2.90 per ABZ
share, implying a valuation of: $2.90 times 5.51* which is equal to $15.98per
share.
(b) Add: ABZ’s working capital (there is no long-term debt): $3.09 per share
(c) Add: ABZ’s interest in Snap Lake, as implied by Winspear’s share price:
$2.34 per share
TOTAL: $21.41 per share
There are two ways in which this value can be realized. Firstly, history (including the history
of Dia Met) tells us that a resource company’s valuation tends to climb once its project is
permitted and construction begins. Secondly, Aber is a likely takeover candidate. We think
that De Beers is a likely acquiror, not only because of the source of diamonds represented
by Diavik, but also because of Aber’s exceptional marketing arrangement with Tiffany’s.
* This multiple may be conservative: because Aber is more focussed on marketing than is Dia Met, the
market may afford it a higher multiple, appropriate to a luxury goods company.