Morgans revises target prices for gold stocks after a review of the sector.
The broker sees the current decline in gold shares as driven by investor sentiment (regarding vaccines) rather than a change to the underlying fundamentals of the gold producers and their profitablity. Volatility is considered a trading opportunity.
As gold companies report second quarter production and earnings in January, the analyst thinks the strength of cash flows will remind the market of the margins producers are still making.
In the financial model, Morgans moves the base case gold price to US$1,750/oz and the Australian dollar to $0.74.
The broker believes Red 5 remains attractively priced for the large, long life King of the Hills project in Western Australia. The company is finalising project debt financing, and has cash flow from the operating Darlot mining centre.
The Add rating is unchanged and the target price is decreased to $0.41 from $0.52.
Sector: Materials.
Target price is $0.41.Current Price is $0.25. Difference: $0.16 – (brackets indicate current price is over target). If RED meets the Morgans target it will return approximately 39% (excluding dividends, fees and charges – negative figures indicate an expected loss).
