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Here's RBC on the investment case for large cap Australian gold companies: So far in FY18, we have seen gold equities outpace the underlying commodity. We identify a number of potential reasons for this.
First, stock specific news flow can deliver catalysts to help drive outperformance.
Second, the precious metals sub-sector of the ASX100 has increased in weighting (now above 1.5% for the first time since 2012), deriving additional generalist investor interest.
Last, investors may be taking a commodity view on a rising gold price (although this is not in line with our US$1,300 gold price forecast).
Our minor changes to production forecasts, costs and mine life assumptions, result in incremental moves in earnings. However, valuations aren't compelling at this stage, so growth & catalysts the key differentiator.
After a strong run in 2017, we currently view the three large cap gold names (Newcrest, Evolution and Northern Star) as all fairly valued at these levels.
In a relative sense, we maintain a preference for Northern Star, with what we view to be the most favourable growth outlook and as such, the company still has attractive organic opportunities.
In the last 18 months we have seen the entrance of NST (Sep'Q16) and EVN (Mar'Q17) into the S&P/ASX 100. More recently, we have seen the precious metals sub-sector weighting within the ASX100 increase to beyond 1.5%.
The last time it was at these levels (Dec'Q12) gold was trading at above US$1,650/oz. We believe the increased weighting has seen renewed focus on the sub-sector from large cap investors and with the addition of NST and EVN, an increase in choice.
ASX100 gold investors now have real alternatives to NCM for the first time since Jun'Q14."
smh.com.au
NST Price at posting:
$5.71 Sentiment: Hold Disclosure: Held
(20min delay)
