Several analysts raised their price targets on Thursday for Sprott Inc. after the investment firm announced plans to acquire three U.S. firms run by junior resource investor Rick Rule as part of a global expansion strategy.
The transaction, which is expected to close by year-end, is an all-stock transaction. Sprott is issuing 20-million shares in a deal costing about $90-million, and may pay out an additional 8-million "earn-out" shares over five years if certain targets are achieved.
Toronto-based Sprott will acquire privately held Carlsbad, Calif.-base Rule Investments Inc., which owns Global Resource Investments Ltd., manager of pooled investment vehicles, as well as Terra Investment Management Inc. and brokerage firm Resource Capital Investments Corp.
M Partners analyst Ryan Roebuck raised his one-year target price to $6.00 a share on Sprott.
"The acquisition gives Sprott better access to the U.S. market in addition to increasing its brand recognition in the United States," said Mr. Roebuck, who is maintaining his "buy" rating.
Resource Capital LP has returned in the range of 28 per cent on an annualized basis over the past 10 years, Mr. Roebuck wrote in a report. "We are confident that this track record of returns will continue and can possibly grow from the synergies created from the Sprott brand."
Deal Makes Strategic Sense
TD Securities analyst Doug Young raised his one-year target on Sprott to $5.00 a share from $4.25, but is maintaining his "hold rating" because of the run-up in its stock price.
Despite potential execution risks because management has a "lot of balls in the air" through new products and new ventures, "we believe this deal makes strategic sense," and the asset growth outlook has improved, he wrote in a report.
GMP Securities analyst Stephen Boland raised his one-year target to $5.00 a share from $4.50, but downgraded his rating to a "hold" from a "buy" rating.
"As shares of Sprott have rallied in the past month, we believe that the current share price fully reflects the company's potential at this time and, as a result we are lowering our recommendation," Mr. Boland wrote in a note to clients. "When more disclosure is provided on the acquisitions, we may revisit our target and valuation."
The headline theme at Sprott for the past few quarters has been the diversification of the company's revenue stream, incorporating bullion funds, consulting and the recent of acquisition of Quest Capital (rebranded as Sprott Resource Lending)," he added.
"Though there is revenue 'source' diversification, we believe that the overall resource concentration may have increased."