Westhouse hails Petra diamond sale, but shares 'no longer as cheap'

14th Feb 2014 14:03

Westhouse Securities has raised its target price for Petra Diamonds after the miner's sale of a giant blue diamond in South Africa, but has downgraded its rating for the stock from 'buy' to 'add' after its recent strong run.The target was lifted from 150p to 170p. However, with the shares trading at a price-to-earnings multiple of 15.9 on 2014 forecasts, the broker said that the stock "is no longer as cheap".Petra's shares have now risen by nearly 27% since the start of 2014 after the company said last month that it had found an "exceptional" 29.6 carat blue diamond at the Cullinan mine in South Africa. Following a "highly competitive sales process", the firm said on Friday it had sold the diamond for $25.56m, equivalent to $0.86m per carat.Westhouse analysts Rob Broke and Nick Hatch said that the deal was 25% ahead of their initial estimates and represents a 30% increase on the price-per-carat value which was received for a similar blue diamond sold in May 2013."As these specials are not included in our models until they are sold, they offer attractive upside to our predicted future cashflows. With the reinstallation of a large diamond recovery plant planned, there is yet more blue-sky potential here," they said.However, Broke and Hatch said they did have concerns about potential strikes and warned of possible further production downtime this summer with wage negotiations being undertaken on an annual basis.Petra was trading 1.1% higher at 149.61p by 14:17 on Friday.BC