In a Sept. 2 research note, analyst Derek Macpherson reported that Red Cloud Securities initiated coverage on Vox Royalty Corp. (VOX:TSX.V) with a Buy rating and a CA$4.75 per share target price. The company is currently trading at around CA$3.06 per share.
"Vox is set to outperform other new entrants to the royalty space as it grows organically via previously acquired assets and inorganically through its innovative and lower cost approach," the analyst commented.
By employing a unique approach to identifying and selecting target acquisitions, the Canadian company is "disrupting the royalty space," Macpherson indicated. Vox's use of digital claim maps and its proprietary database of more than 7,000 existing royalties, which are tied to established mining claims and resources, affords it the advantage of often being the only bidder for a single royalty, the analyst commented.
It also "has allowed Vox to acquire new royalties from nontraditional vendors at a significant discount to peers," wrote Macpherson, at "an average acquisition multiple of 0.28x net asset value (NAV) versus peer typical royalty acquisitions at 0.66x NAV."
Today, the Toronto-based company has 47 royalties in its portfolio, five of which it purchased after its May 2020 initial public offering.
"As Vox executes on its strategy and continues to demonstrate its ability to acquire royalties at a discount to peers, we believe it should eventually garner a premium multiple to junior royalty peers," Macpherson commented.
The analyst pointed out that early-stage royalty companies like Vox tend to outperform their larger peers, due to the cash flow growth and improved share price that generally come from every purchase. On top of that, Vox has the added benefit of growth born out of its exclusive acquisitions database. As such, Red Cloud expects that Vox will continue to add royalties at a faster pace than its peers and at much better values.
Also for Vox, growth is already built into the royalties it owns but it is not fully baked into its valuation, Macpherson noted. The company currently has three producing royalties. Two more are coming online in 2021, resulting in roughly 56% year-over-year growth, according to Red Cloud's projections. With nine royalties expected to be producing in 2025, revenue growth for Vox between 2021 and 2025 is an estimated 673%.
Macpherson noted upcoming potential catalysts for the royalty and streaming company include initial guidance expected in Q3/20, Q3/20 financial results anticipated in Q4/2020 and additional royalty acquisitions.
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Disclosures from Red Cloud Securities, Vox Royalty Corp., Initiating Coverage, September 20, 2020
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