Northern Star Resources Ltd (ASX: NST) posted a robust increase in profit this week, but the question is, with the stock having nearly doubled over the past year, where to from here?
Firstly, let's look at the results.
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Strong profit
Northern Star reported a net profit of $714 million for the first half, up 41% on the previous corresponding period, but negative free cash flow to the tune of $320 million.
This came about due to a "soft" performance in the second half, $275 million of tax payments, and growth project investment, the company said.
The company also announced a fully-franked dividend of 25 cents, in line with the previous first half.
Northern Star Managing Director Stuart Tonkin said regarding the result:
This first half result demonstrates the resilience and growing returns we are embedding in our business, which allowed the Board to declare a 25 cents per share interim dividend despite a soft operating performance. Our balance sheet remains in a net cash position notwithstanding the significant investments we are making to transform Northern Star into a lowest-half global cost producer. We look forward to safely commissioning the KCGM Mill Expansion on schedule in early FY27, positioning the business for a significant uplift in cash generation and return on capital employed. This enhanced cash flow outlook strengthens our ability to deliver attractive returns on investment, supports capital management, and allows us to continue to advance the Hemi Development Project in a disciplined manner.
What do the analysts think?
The analyst team at Barrenjoey have had a look at the Northern Star results and said they were in line with expectations.
They said management also flagged that a final investment decision for the Hemi project was likely to be pushed out to FY27 with first production in FY30.
The Barrenjoey team added:
Although this may drive some small downgrades to consensus forecasts, we think this is expected by investors and possibly welcomed as it implies a window for strong free cash flow generation from the new Superpit mill expansion before Hemi construction. Despite reiterating Superpit mill commissioning in the Sep-26 qtr, we maintain our Neutral rating, as we still see near-term execution risk.
The Barrenjoey team said Northern Star appeared inexpensive relative to its local and global peers, but there was a reasonable amount of execution risk in the near future.
They added:
FY26 is clearly a massive year of investment for Northern Star, with the focus on completing the Superpit mill expansion due for Sep-26 quarter. The successful delivery to time/budget is the key catalyst for Northern Star from which the share price performance should follow. The completion of this project is expected to provide a step-change in production and cashflow for Northern Star but is not without execution risk, particularly in the final stages of the build.
Barrenjoey has a neutral rating on the stock but a bullish price target of $36, which would be a 28.5% increase from Friday's price of $28.
Northern Star was valued at $42.1 billion at the close of trade on Thursday.
