12.05.14 - 09:27 Uhr
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Central Asia Metals (Price: 175p | Target: 236p | Rec: Buy)

Given its strong balance sheet, low operating costs and high dividend yield, Central Asia Metals offers, in our view, the lowest-risk pure copper exposure of our research coverage. The company should complete the Kounrad subsoil use contract (SUC) transaction in H1 FY14E, opening the door to expansion possibilities that we expect to create additional value, as we highlight in this note. We reiterate our Buy recommendation.

* FY13A results and FY14E outlook: The FY13A results reflected solid operations that are both profitable and highly cash generative and we expect this trend to continue. We have, however, lowered our EPS estimates following the FY13A results, reflecting higher levels of depreciation. Our EPS estimates have come down from 34c to 32c for FY14E and from 33c to 31c for FY15E.
* Defensive copper exposure: In this note, we look at Central Asia Metals in various consensus-based copper price scenarios. We conclude that it would still support a Buy recommendation, even in the most bearish of consensus copper price scenarios.
* Valuation and recommendation: Based on an equal weighting of NPV, peer group earnings multiples and dividend yield metrics, our target price has increased from 230p to 236p and we reiterate our Buy recommendation. Our analysis of a possible expansion to 15,000t/year copper production indicates potential target price upside to 268p per share.
* Risks: Central Asia Metals has proven to be a reliable producer so we believe operational risk is low. While exposed to single commodity risk, low production costs mean it can withstand lower prices than its peer group.

To access the full note please click here<

Analyst: Louise Collinge +44 (0)20 7597 5779

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