discount to peers

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Andrew1980

Senior Member
Hi,

I am reading an investment case for the Toliara mineral sands mine in Madagaskar and cannot understand what "discount to peers" can mean in the context below

Valuation: Our share price target of A$ 0.45 is based on a PER of 4x and P/NAV of 0.5x. This approach is a heavy discount to major producers such as Iluke Resources Ltd. due to its phase of development and greater risk. It is also a discount to more directly comparable ASX-listed peers, Base Resources and Mineral Deposits, due to its pre-development and pre-funding status

Does it mean that other producers have an advantage over the company in question or vice versa the company proposes more favorable financial results?

I would appreciate your answers.
 
  • gramman

    Senior Member
    Hi Andrew1980

    My first reaction is remembering the headaches I sometimes got studying business economics. :confused:

    The number discussed is a share price target. In other words, "we expect our shares will be valued at X." In a description of the calculations involved in determining that price, it is noted that sales will be made to the companies listed at a discount, and of course this will diminish revenues and therefore stock valuation. So it may be accurate to say that these "producers have an advantage over the company" relative to others who will not be able to make purchases at the discounted price. But do they have an advantage over the company itself? I assume that is balanced out by the factors listed: phase of development and greater risk, and pre-development and pre-funding status. Does the "company propose more favorable financial results"? Well, only if they can somehow in the future overcome the requirement to make discounted sales. They may be indicating this if we assume that development and financing costs will diminish over time.

    My guess is that this analysis will be entirely worthless to you, but I did the best I could. :)
     
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