TSX:ORT;OTCQX:EORBF:$2.88 - SPECULATIVE BUY
12 MONTH TARGET PRICE : $8.00 | PROJECTED RETURN: 178%
A CLEAN BREAK
EVENT – INITIATING COVERAGE
We are initiating coverage on Orbite Aluminae Inc. with a
Speculative Buy recommendation and a target price of $8.00/share. A full-length report titled "A Clean Break" will be available later today.
INVESTMENT OPINION – A LEADING METAL PRODUCER
A lowest costs producer:
Orbite is poised to become the lowest cost producer of high purity alumina and one of the lowest cost producers of smelter grade alumina.
Strong technical team:
We believe that Orbite has assembled a team of world renowned engineers in the field of chemical processing and is on track to develop the world’s first toxic-waste-free alumina refinery.
Orbite is in the process of securing a partnership with the world’s largest producer of aluminum AC Rusal, and India’s top aluminum producer Nalco.
The first heavy rare earth producer:
Orbite could become the first producer of individually refined heavy rare earths, and the leading producer of scandium.
Robust business model:
Despite the high demand forecast for HPA, our growth assumptions for the HPA segment are conservative. More than 8 SGA plants will be required to satisfy Quebec’s current demand for alumina but, as per the PEA, we only model one SGA Plant. In addition, our target price does not account for the potential licensing revenue from agreements with Rusal and Nalco. Orbite is building a robust and diversified metal business.
ACTION – GOOD ENTRY POINT
Orbite is less than 6-months away from proving the viability of its disruptive technology. The company has a number of immediate catalysts that, market permitting, should drive the stock to record highs.
VALUATION – STRONG GROWTH POTENTIAL
Orbite is trading at a forward EV/(2015)EBITDA multiple of ~1.5x , our estimated 2015 EV/EBITDA is 6.5x. In the next 6-12 months, as the technology risk further decreases and the volatility of the stock falls, WACC should also fall, granting the company much higher valuations. If we apply the industry beta to our WACC calculations, WACC falls to 9.6% yielding a $14 target price.