Stock in Mexico-focused silver miner Fresnillo plc (LON:FRES) is ‘oversold’, according to HBSC.
The bank’s analysts said the shares, down 26% in the year to date, have “overplayed” operational setbacks, while expected improvements haven’t been factored into the current valuation.
READ: Fresnillo reaffirms full year guidance after third quarter growth in silver and gold output
It has moved to ‘buy’ from ‘hold’ and while it has cut its target for the shares from £17.60, at £15.70 this is still well ahead of the current price of £13.10 (up 2% on the day).
“Fresnillo’s valuation now looks very attractive on a historical basis and relative to peers,” said HSBC in a note to clients.
It points out the shares are currently trading at a 20% discount to their peer group and are around 17% behind closest comparator, Agnico Eagle, when they used to change hands at a 12% premium.
Meanwhile, on the ground HSBC expects things to improve over the coming months.
READ: Fresnillo's production unaffected by Mexico earthquake
“While Fresnillo appears to have stumbled somewhat and operating costs are likely to rise in the second-half and 2018, it is still a premier name with one of the best production growth profiles and very low operating costs,” investors were told.
“We believe [the] third was a low point operationally and expect improvements from quarter-four onwards.
“Fresnillo mine access to higher-grade stopes should improve, but progress will be gradual as the new contractor is on-boarded and trained.”
HSBC said it expects grades at the Saucito mine to rise, while Herradura is poised to deliver “another strong production quarter".