On Friday, JPMorgan adjusted its stance on Northern Star Resources (NST:AU) (OTC: NESRF), downgrading the stock from Overweight to Neutral and revising the price target to AUD14.25 from the previous AUD15.00. This change reflects the firm's reaction to Northern Star's March quarter results for the 2024 fiscal year.
The company's future outlook, particularly concerning the 2025 fiscal year, was weaker than JPMorgan had anticipated. The capital expenditure forecast was notably higher, approximately 39% above JPMorgan's prediction, as Northern Star plans to invest in all of its operational hubs with the goal of reaching a production rate of 2 million ounces per annum.
Northern Star's quarterly production met expectations, but sales fell short by 5%. However, the All-In Sustaining Cost (AISC) outperformed expectations by 4%, with an especially strong performance at the Pogo mine. For the upcoming August financial report, JPMorgan forecasts an EBITDA of $2.2 billion, a Net Profit After Tax (NPAT) of $696 million, and a final dividend of 19 cents per share based on a 20% payout ratio from $1.8 billion in cash earnings.
Despite these figures, JPMorgan's forecast for the company's 2025 earnings has been reduced by 22%, leading to a 5% decrease in the discounted cash flow (DCF)-based Net Present Value (NPV) to $14.15 per share. Currently, Northern Star's stock is trading at a slight premium to JPMorgan's NPV, at 1.01 times. This slight overvaluation, coupled with the revised forecasts, has led to the downgrade to a Neutral rating.
In other recent news, Northern Star Resources saw an adjustment in its price target by RBC Capital, moving it to AUD16.50 from the previous AUD17.00. This revision followed the company's fourth-quarter performance and future financial year 2025 (FY25) projections, which demonstrated softer results than expected by RBC Capital and the market consensus.
The firm maintained an Outperform rating for the stock, despite a slight shortfall in gold production, all-in sustaining costs, and growth capital expenditures. These factors contributed to an estimated AUD560 million reduction in free cash flow (FCF), leading to a reduced FCF yield for FY25 of approximately 4%.
Analysts at RBC Capital noted that Northern Star's stock had been underperforming relative to its peers prior to these results. Despite a 9% reduction in the company's expected FY25 earnings before interest, taxes, depreciation, and amortization (EBITDA), the valuation remains at a 4.9 times enterprise value to EBITDA ratio, with a lower 3.6 times ratio projected for FY26.
The firm's continued Outperform rating is buoyed by the ongoing AUD1.5 billion KCGM mill expansion. RBC Capital analysts maintain confidence in the stock, emphasizing the potential value with the revised price target. These are recent developments in the performance and future projections of Northern Star Resources.
InvestingPro Insights
As Northern Star Resources (OTC: NESRF) navigates through its fiscal challenges and investment plans, real-time data from InvestingPro offers a wider perspective on the company's financial health and market performance. With a market capitalization of $10.39 billion and a P/E ratio of 21.35, Northern Star stands as a significant player in the mining sector. Notably, the company has shown a robust revenue growth of 13.87% over the last twelve months as of Q2 2024, indicating a strong operational performance amidst the planned capital expenditures.
InvestingPro Tips highlight that Northern Star has a history of maintaining dividend payments for 13 consecutive years and has been profitable over the last twelve months, which could reassure investors looking for stability and consistent returns. Additionally, the company operates with a moderate level of debt and its cash flows can sufficiently cover interest payments, suggesting a solid financial foundation.
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