After its recent solid third-quarter update, UBS asks if it is finally time for the Mexican gold and silver miner Fresnillo PLC (LSE:FRES) to shine after 10 years of underperformance.
Alas, the bank's answer to its own question still seems to be no, even with gold and silver prices at record highs.
Over the past ten years, UBS notes Fresnillo has seen multiple guidance downgrades, erosion of the medium-term growth/project pipeline, declining production and material cost inflation.
That history means the miner has much to do to convince a sceptical market, starting with consistent delivery against guidance and in free cash flow generation.
Third-quarter numbers were OK, says the bank, but it still expects Fresnillo’s mine grades to miss guidance, noting that updates recently have usually led to consensus downgrades.
At current gold/silver prices, Fresnillo should generate plenty of cash and be in a position to lift cash returns but UBS adds that with a declining production profile and limited credible organic growth options, it might instead look to M&A to bolster its longer-term outlook.
'Neutral' is the rating with a £6.75 target based on a free cash flow yield of 11%, which if it materialises would be attractive, UBS says, before adding the caveat that "our confidence in operational execution and capital allocation remains low”.