Deutsche Bank gave a boost to two copper producers on Wednesday, upgrading ratings for both FTSE 100-listed Antofagasta PLC (LON:ANTO) and FTSE 250-listed KAZ Minerals PLC (LON:KAZ), in separate notes to clients, highlighting valuations factors after share price falls from worries over the impact of the coronavirus in China.
Analysts at the German bank raised Antofagasta to ‘hold’ from ‘sell’ with an increased target price of 850p from 840p, with the blue-chip shares currently changing hands at 895.20p, up 4.3% on Tuesday’s close.
They noted that the outbreak of the coronavirus in China – the world’s biggest consumer of copper - has led to an aggressive correction in Antofagasta’s share price, down around 15% since mid-January, with the Chile-based firm one of the very few large-scale, low-risk copper producers globally.
The analysts said: “We expect the company to maintain its premium valuation driven by its long-life asset base, established track record and strong balance sheet.
“ANTO's limited FCF generation and political uncertainties in Chile prevent a more bullish view; however, 2020 should represent a trough volume year with higher volumes and lower costs expected in 2021 with the start-up of the Los Pelambres expansion and higher grades at Centinela.
“Ahead of FY19 results on 17 March (preview within), we raise 2019-21 EBITDA by ~3% (largely on lower costs) and raise our TP from £8.4 to £8.5. We expect an above consensus special dividend to be announced for FY19.”
KAZ to ‘buy’
The Deutsche Bank analysts upgraded mid-cap KAZ Minerals to ‘buy’ from ‘hold’ with an unchanged target price of 610p, helping its shares rise by 5.3% to 497.90p, citing valuation factors, a positive copper outlook, and the potential for project de-risking catalysts from the second half of 2020.
They pointed out: “Despite delivering strong Q4/FY19 production results and a positive refinancing update in late Jan, KAZ has fallen >20% since the outbreak of the Coronavirus.”
The analysts said: “While the Baimskaya project is an impediment for some investors, we find the current valuation too compelling to ignore. The core Kazakh operations continue to perform well, are low cost and highly cash generative.
“When Aktogay II comes on stream in 2021, Group FCFs ex Baimskaya should lift to ~$600m, equivalent to a FCF yield of over 20% (2021 exit rate basis).
They concluded: “Blue sky, KAZ could be worth over £8/sh (>80% upside) on delivery of Aktogay II, a copper price of $6,200 and a minority stake sale in Baimskaya.”
Meanwhile, Goldman Sachs raised its target price for KAZ Minerals to 550p from 540p but kept a ‘neutral’ rating on the stock.