Investec has been doing some number crunching on the mining sector, increasing the discount rate that it applies in its models to derive net present values of mining companies.
It has done so because of the significantly increased commodity price volatility of late.
In the wake of the recent decision by Glencore (LON:GLEN) to abandon its commitment to a maintained dividend, the broker opines that dividends across the sector remain at risk, and hints that the 800lb gorilla in the sector, BHP Billiton (LON:BLT) may soon have a hard decision to make on its pay-out.
The broker has cut its target prices for several companies in the sector, as follows:
- Acacia Mining (LON:ABG) - 211p from 244p;
- Anglo American (LON:AAL) - 402p from 558p;
- Antofagasta (LON:ANTO) 298p from 335p;
- BHP Billiton - 943p from 1,078p;
- Centamin (LON:CEY) - 66p from 69p;
- Central Asia Metals (LON:CAML) – 131p from 154p;
- Ferrexpo (LON:FXPO) – 32p from 39p;
- Gemfields (LON:GEM) – 67p from 80p;
- Glencore (LON:GLEN) – 77p from 95p;
- Petra Diamonds (LON:PDL) – 118p from 134p;
- Randgold Resources (LON:RRS) – 4,187p from 4,434p;
- Rio Tinto (LON:RIO) – 2,330p from 2,615p;
- Sierra Rutile (LON:SRX) – 25p from 28p
Despite the price target revisions Investec maintains its recommendations save for Centamin, which is upgraded from 'hold' to 'buy'.
Charlie Long at Sanlam Securities has reiterated his 'buy' recommendation on Bezant Resources (LON:BZT) after the soon-to-be Colombia-focused platinum miner confirmed a healthy cash position at the end of its fiscal year.
“Assuming Bezant exercises its option over the Colombian platinum project, this will be become the company’s primary focus going forward. We remain hopeful that Mankayan will be sold to either a private equity group or, much more likely, a Filipino group. Eureka’s potential can only be realised if and when the situation in Argentina improves for foreign investors and exporters,” Long said in a research note on Bezant.
Bezant’s management has a successful track record in platinum mining, the Sanlam number cruncher said, and the board believes this Colombian project has the potential be a "low capex and opex platinum and gold” producer.
“Low capex is of key importance in the current difficult mine finance environment,” Long said with commendable understatement.
Galileo (LON:GLR) appears to be re-refocusing back to South Africa was the deduction by Shore Capital after Tuesday Morning's announcement of a memorandum of understanding to take a majority stake in the Concordia copper project in Cape Province.
Elsewhere among the resource plays. Ophir Energy (LON:OPHR) and Premier Oil (LON:PMO) have both emerged from the doghouse.
Ophir is upgraded to 'neutral' from 'under-perform' by Credit Suisse and Premier is moved to 'hold' from 'sell' by Canaccord Genuity.
J. Sainsbury (LON:SBRY) is the first of the big four supermarkets to call an end to the price war with the hard discounters, with Nomura reporting that management said there would be “no more blanket £150mln price investments like we made last year”.
“We think Sainsbury is making the point that we have been making for two years: that much of the discounters’ success (such as it is, with Aldi only having caught up with Big 4 densities in 2013 and Lidl still lagging behind) comes from clever price ‘tactics’, pricing in between ‘core’ and ‘basics’ lines at the Big 4, and some cherry-picking of spots to create a perception of superior value,” Nomura's David Payne asserts.
Via targeted responses of their own, the Big Four ought to be able to continue to threaten discounters’ return on capital employed (ROCE) without simply using margin to do it, Payne believes.
Nomura has increased its forecast for retail earnings before interest and tax (EBIT) by £27mln to £70mln, resulting in the price target nudging up to 250p from 240p.
Meanwhile, Citi has upgraded Tesco (LON:TSCO) to 'buy' from 'neutral', while Morrisons (LON:MRW) is cut to 'sell' from 'buy' and Sainsbury's to 'neutral' from 'buy'.
Online fashion firm ASOS (LON:ASC) has replaced Dixons Carphone as Barclays' top retail pick.
Positive feedback from last week's fashion preview for spring/summer 2016, strong current trading and a solid outlook into fiscal 2016 reassures the bank's retail analyst, Christodoulos Chaviaras, that ASOS has started the year on a strong note.
“What is particularly appealing at this stage is visibility that, in our view, is better than in the recent years: we see a clearly laid out strategy of calculated investment and growth for the years to come,” the analyst said.