13.08.14 - 11:54 Uhr

Randgold Resources (Price: 5110p | Target: 5016p | Rec: Hold)

Randgold continues to trade at a premium relative to its global peers, based on earnings multiples. While its growth outlook cannot justify this, its high-grade orebodies and low-cost ounces offer greater surety of earnings, together with the associated capacity to increase dividends. It is this relatively lower risk that the market is paying for, in our view. We have lifted our target price to reflect the roll forward of our model and greater weighting towards higher-earning years. We maintain our Hold rating.

* We have made only modest changes to our production and EBITDA forecasts following the 1H14A results. However, our earnings forecasts have reduced due to increased D&A assumptions, particularly at Kibali, and therefore a reduced contribution of earnings from joint ventures. This is felt most in FY14E, with EPS down 13% on previous forecasts, while FY15E and FY16E EPS are reduced by c.6%. Importantly, the impact on free cashflow is negligible with the forecast net cash position at the end of FY16E still just short of $600m, leaving ample capacity for increased dividends, as is Randgold’s intention.
* Our target price (based on an equal blend of NPV and three-year forward multiples) has increased to 5016p (from 4603p), benefitting from rolling forward the NPV model and associated increased weighting of multiples towards future years, where earnings are higher. Randgold remains fully valued under our base case assumptions ($1,300/oz gold). It is not, however, out of kilter with growth-oriented global peers such as Eldorado (ELD CN) and Goldcorp (GG US). The key risk to the target price is the gold price, which in turn is dependent on geopolitical and macroeconomic issues. Increased government tax grabs and ongoing project deliveries remain lesser risks.

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Analyst: Hunter Hillcoat +44 (0)20 7597 5182

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