BUY Panoramic (PAN)

• Our last commissioned report was on Panoramic, rating it a BUY at $2.37 on 1 August 2008, and we again recommended it as a BUY in our post Diggers Comment at A$1.45 on 11 September and it has continued to fall along with most of the resource stocks currently to ~A$1.12 per share, and given the state of the market may fall further from 7 October 2008.
• However, we continue to rate PAN as a BUY.......................WHY ?, well :
• At A$1.12 per share, PAN appears to have a fully franked dividend yield of 10% (or in other words about double what you get for money on deposit in an Australian bank [and bank rates are expected to fall]). The current 7.5%pa (less the bank fees, which for this example we have ignored) becomes an equivalent 5.25%pa after paying 30% tax (placing it on the same comparable basis as a fully franked yield).
• If PAN’s share price falls further from here ($1.12), then you should get an even higher dividend yield.
• That dividend yield is based on PAN paying 11Ac to 12Ac this year to June 2009, and according to our estimates, it should be achievable, even if nickel falls to US$6/lb. PAN has paid 12c per year for the past 2 years (the first 12c was a maiden final for the year to June 2007, and in the year to June 2008 PAN paid a 7c interim followed by a 5c final). Last years’ 12c was a 43% payout ratio based on earnings of 28.4c (DH07 : $24.4m, 13.7c eps: JH08 : $29.9M, 15.5c eps).
• Our August 2008 estimate for the year to June 2009 was an eps of 39c, based on US$9/lbNi and a US95c exchange rate or A$9.47/lbNi, whereas at current prices of nickel at US$6.87/lbNi and the A$ at 77.5USc, PAN is receiving A$8.86/lbNi, which results in an eps of 39.6c in 08/09 and 43.1c in 09/10, and 40c at a 40% payout ratio = 16c (and an NPV of $2.45).
• If the nickel price fell to US$6/lb (as some major brokers believe), and assuming an unchanged exchange rate of 77.5USc, then PAN’s 08/09 eps becomes 32c or at a ~40% payout possibly ~ 12c to 13c in dividends.