TD Securities Research Report - ALO - May 2019We have updated our model for the Q1 results and made adjustments to our forecasts. Management noted that there were difficult weather conditions at Florida Canyon and also low equipment availability. However, the results came in largely in line with our estimates. After incorporating the quarter and adjustments, our NAVPS estimate decreases slightly to C$2.41, from C$2.51 previously.
Q1 adjusted EPS of $0.01 was above our estimate of -$0.03 and below consensus of $0.02. CFPS of $0.04 vs. our estimate of $0.02 and consensus of $0.05.
Q1 production of 23.2k oz is in line with our estimate of 23.0k oz. Production at San Francisco was approximately 11.0k oz, above our estimate of 9.5k oz. Florida Canyon's production was 12.3k oz, about 9% below our estimate of 13.5k oz.
Florida Canyon the focus: As a reminder, San Francisco is now just processing stockpiles and residual leaching for the remainder of the year. We believe that this will generate small positive free cash flow while it focuses on improvements at Florida Canyon.
Cash costs for the quarter were $1,094/oz, in line with our estimate of $1,097/ oz. Alio reported AISC of $1,278/oz for the quarter.
Balance sheet: Alio had $18.9mm in cash as at March 31, 2019, down slightly from $22.0mm as at December 31, 2018.
TD Investment Conclusion
We are maintaining our BUY recommendation and our target price of C$2.50. Alio is currently trading more as a developer than as a producer, which is appropriate. With the stock trading at 0.34x NAV, we continue to believe that there is value here to be surfaced in a better junior/developer market.
Valuation
Alio is currently trading at 0.34x NAV and 3.5x 2020E EBITDA, well below the junior/mid-cap producer group average of 0.82x NAV and 4.4x 2020E EBITDA. With the addition of the Florida Canyon mine through the Rye Patch acquisition, we believe that the stock should trade closer to the average valuation of its peer group.
12-Month Target Price: C$2.50
12-Month Total Return: 204.9%