ABZ: Downgraded to HOLD, targed $47.50By Steven Butler of Canaccord
RATING LOWERED TO HOLD FOLLOWING WEAK Q1/05 RESULTS Event: Aber recently reported Q1/05 (for quarter ending April 2004) EPS of $0.05 or $0.11 after adjusting for extra NWT tax provisions. This was substantially below our $0.30 estimate due to lower diamond sales. Impact: We have lowered our 2005 estimates to account for a greater lag in sales versus production. Forecasts: Our F2005 EPS estimate has been reduced to $1.24 from $1.79 due to lower Diavik sales this year (on 100% basis, 6.2 million cts versus our previous estimate of 7.74 million cts, which was the midpoint of expected production range of 7.5-8 million cts). Our F2006 estimate has been reduced to $2.09 from $2.17 due to higher G&A costs and interest expense. Note that our 2006 estimate is a fully-loaded estimate, reflecting throughput of two million tpy and the stated reserve grades assuming no added dilution (Kimberlite mud material is diluting production grades in fiscal 2005). Pending more information, Harry Winston is not yet included in our estimates. Valuation: We have lowered our target price to $47.25 from $52.00. Our revised target represents a reduced multiple of 17 times (versus 18 times previously) our 2006 EPS estimate of $2.09. Action: We have lowered our rating to HOLD from Buy on the basis of the weak Q1/05 results, lower 2005 and 2006 earnings, and reduced implied return to our revised target price of $47.25.