Growth Focus: Independence Group NL (IGO)

by Patrick Taylor



Date of Data Capture: 17/7/2019

Name: INDEPENDENCE GROUP NL (IGO)

Classification: Integrated Mining

Current Price: $5.19

Market Capitalisation: $3.07B

Forecast EBITDA Growth: 23.55%

Yield Estimate: 1.39%

Consensus Price Target: $5.05

# Covering Analysts: 13

Premium at Current Price: 2.70%

Price Target Trend (3-Month): Up-Flat +6.32%

Signal Timeframe: Quarterly-Monthly-Weekly

Trend Bias: Up-Down / Long-Medium

Indicators:
Short-term: Positive-Neutral
Medium-term: Positive
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• Gold, nickel and zinc miner IGO is moving up within both a medium and long-term uptrend (medium pictured here) showing good technical momentum combining well with strengthening fundamental performance and good forecasts.
• Very strong earnings gains in 2018 were driven by a big jump in sales, firmer margins and significant debt reductions – the tough times over the last 10 years have transformed the company and it is looking lean and mean here.
• Major 9-year linear resistance broke at the outset of 2018 and after working through an intermediate down-cycle, pricing now looks ready to move higher after important structural resistance ceiling at $5 broke earlier this week.
Support ($): 5.00, 4.75, 4.50, 4.25 & 4.00.
Resistance ($): 5.25, 5.50, 6.00, 7.00 & 8.00.


Growth Focus: INDEPENDENCE GROUP NL (IGO)

Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.

While it is true that flags do represent ‘independence’ in a number of countries around the World, here we are following the technical resistance break of a nine-year ‘pennant’ charting pattern as Independent Group pushes higher on surging nickel pricing, strengthening performance and excellent forecasting.

Listing on the ASX in 2002, IGO has experienced a volatile mix of fortunes in its time, but has nevertheless grown to become a leading Australian integrated miner, producing nickel, gold, silver, copper and zinc. The company has growing exposure to high potential growth metals like cobalt (in addition to nickel and copper) in-line with the companies stated strategy of being a “globally relevant supplier of metals critical to clean energy and energy storage.”

Independence is active in exploration, with new landholdings being added this year, as well as the expansion of existing projects, recently seen with upgrades to its copper, cobalt, gold and nickel assets. A key driver of future growth is seen not just in successful mining and exploration, but also in the development of its ‘IGO process’ where the company is pioneering a method of processing of nickel sulphate, with the potential to improve efficiencies while reducing emissions and waste, with expectations for this process to bring operating costs into the lowest comparative quartile against competitors.

Performance has been volatile, with the company coming through a series of tough patches, but since 2016 we have seen consistently increasing sales, earnings and profits with strong forecasting showing expectations for this to continue out to 2021. Analyst coverage offers up a strong majority positive consensus view and while the current valuation shows only a small discount to target pricing, these targets have been rising sharply in 2019.

Pricing tells an interesting tale here with IGO making an all-time high peak in February 2008, before entering into the GFC with steep declines and an ongoing series of long multi-year trends in the time since. There has been a ceiling of linear resistance capping the stock on every rally within a 9-year pennant pattern of constricting decline. Importantly, this ceiling broken at the start of 2018, before pricing retreated within a medium-term pullback, but is now setting up with good momentum and positive signalling across multiple timeframes.

With price breaking through structural resistance at $5.00 just last week, we see this as an exciting technical setup, backed by world-class assets in strengthening metals, operating a low cost base with a strong balance sheet, and we think this nickel and gold play could really gain some lustre here.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.