Every Good Story Has A Price

This story features IGO LIMITED, and other companies. For more info SHARE ANALYSIS: IGO

By Rudi Filapek-Vandyck

It’s an element that is too often and too quickly forgotten by investors chasing the same momentum ideas in the stock market: eventually even the share price of a solid growth story can run up too quickly too fast.

Resources analysts at Shaw Stockbroking believe the above paragraph applies to nickel producer Independence Group ((IGO)) having updated their model and assumptions which has led to an increased target price of $7.00 – unfortunately, this is still well below the $8.35 the shares are trading at currently (Monday, around midday).

Shaw believes the company has a good story to sell, and the Tropicana gold resource for which an updated resource estimate should be released anytime soon, will only add to the company’s appeal, but - everything has a price.

The broker joins other experts in the Australian market who believe that corporate speculation has been a major driver behind Independence Group’s stellar share price performance and now advises that shareholders who bought in at lower prices may want to consider taking some profits on their paper gains.

Investors should keep in mind that projects such as Tropicana will face the same cost pressures as the ones that are haunting major new projects elsewhere, the broker points out, adding there are definitely downside risks to current forecasts and estimates for the next few years.

A quick look at the FNArena Stock Analysis application teaches us that Shaw analysts are relatively generous with their assessments as colleagues at Citi and Macquarie have a much more conservative approach rating the shares Sell and Neutral respectively with price targets of $5.90 and $6.00.

Shaw’s negative advice follows an even stronger negative recommendation for zinc company Terramin Australia ((TZN)) – issued last Thursday.

Equally to Independence Group, the broker believes Terramin’s phenomenal share price performance to date is to a great extent explained by speculation about corporate interest for the company’s assets.  But as the broker has a twelve month target price of $3.20 for the shares and with the shares now approaching $4 the view is very clear: sell with the view of re-entering the stock at a later stage closer to the broker’s price target.

It has to be noted that investors have thus far completely ignored Shaw’s view on both companies.

The broker has a positive view on developer of copper and gold projects Tamaya Resources ((TMR)) arguing the stock should be trading at $0.42 and not somewhere in the $0.20s. Shaw rates the shares as a Buy with investors pushing up the share price to $0.28 on Monday.

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