The recent rally has moved the share price of precious metals miner Hochschild Mining PLC (LON:HOC) adjacent to RBC’s price target, prompting a downgrade.
The Canadian bank’s Tyler Broda has moved from ‘outperform’ to ‘sector perform’ now that Hochschild’s share price has reached RBC’s fair value of 260p.
READ: Hochschild Mining swings to full year profit as production and revenue rises
“The shares have reached fair value on our estimates, helped in part by the achievement of two key catalysts which provided rerating potential (Pablo approvals and debt refinance). We would look to take profits and seek a more attractive entry point,” RBC said.
RBC, which currently acts as broker to Hochschild, has been tracking the relationship between the miner’s enterprise value (EP) – essentially the market capitalisation adjusted for cash and debt – and forward 12-month underlying earnings (EBITDA) since 2010, and says the EP/EBITDA ratio is currently at the higher end of the range based on its EBITDA forecasts.
“From here, the story becomes one of growing production through mainly brownfields growth driven by exploration, or potentially small scale M&A, we believe, alongside deleveraging (we forecast net debt to reduce from US$110m in FY17 to US$130m net cash in FY19, or US$127m net cash at spot),” RBC said.
The shares dipped 2.4% to 256.7p following the downgrade.
RBC said its favourite stocks in the precious metals sector are Centamin PLC (LON:CEY) and AngloGold Ashanti; the former has an ‘outperform’ rating and a target price of 170p.