It’s all about commodities stocks so far this week, with Fortescue Metals and Rio Tinto receiving upgrades, while Newcrest Mining and Woodside Petroleum are in the downgrades from the 7 stockbrokers monitored by FNArena.
In the good books
Fortescue Metals Group Limited (FMG) was upgraded to Neutral from Sell by UBS
After allowing for the Ukraine/Russia conflict, the UBS commodities team sees higher commodity prices for longer on the assumption the global economy avoids a material downturn.
The broker’s price revisions are highest for thermal and metallurgical coal, nickel, aluminium, zinc, platinum group metals, iron ore and gold. It’s believed demand headwinds will be offset by commodity supply disruptions/trade re-alignment for the next 12-18 months.
For Fortescue Metals, UBS raises its rating to Neutral from Sell after upgrading its iron ore price forecasts for 2022 and 2023 by 23% and 24% to $135/dmt and $105/dmt [62% Fines cost and freight (CFR) China] with minor changes to forecasts from 2024.
The target price rises to $17.10 from $16.30.
Gold Road Resources Limited (GOR) was upgraded to Neutral from Underperform by Macquarie
As a result of recent share price weakness and the release of FY21 results, Macquarie upgrades its rating for Gold Road Resources to Neutral from Underperform, while retaining its $1.70 target price.
Profit was a $7.6m beat versus the broker’s estimate due to a positive move in inventory. The final fully-franked dividend of 0.5cps was also higher than Macquarie expected.
Mineral Resources Limited (MIN) was upgraded to Overweight from Equal-weight by Morgan Stanley
Morgan Stanley points to near-term earnings support for the mining sector from inflation expectations, rising input costs (particularly energy) and supply impacts from the Ukraine/Russia conflict.
Should inflation persist and demand destruction is avoided, longer-term commodity price estimates will need to be raised across the sector, suggests the broker. This is especially the case for commodities like aluminium, alumina and zinc, which have high input costs.
Morgan Stanley lifts its rating for Mineral Resources to Overweight from Equal-weight and raises its target to $56 from $45.70.
While lithium production is ramping up and high prices are being achieved, higher iron ore prices are also benefiting the company’s high-cost operations, explains the analyst. Industry view: Attractive.
Rio Tinto Limited (RIO) was upgraded to Neutral from Sell by UBS
UBS upgrades Rio Tinto to Neutral from Sell and raises its target price to $104 from $90 on an improving risk-reward ratio for the iron ore price over the next 12 months.
Apart from the boost via the Ukraine/Russia conflict, the analyst notes stronger-than-expected data from China in January and February and believes there is a prospect of further easing to achieve the country’s growth targets.
The broker upgrades its 2022 iron ore price forecast to US$135/t from $110/t and its 2023 forecast to US$105/t from $85/t.
Washington H. Soul Pattinson and Co. Limited (SOL) was upgraded to Add from Hold by Morgans
Following solid 1H results, Morgans raises its rating for WH Soul Pattinson to Add from Hold given more than 10% upside for total shareholder returns to the new 12-month target of $30.60, reduced from $36.78.
Underlying group profit was $344m, up by 281% on the previous corresponding period.
The new target arises after allowing for the 1H result and further improvements to the broker’s near-term yield assumptions post the recent results of core portfolio holdings.
Uniti Group Limited (UWL) was upgraded to Accumulate from Hold by Ord Minnett
Uniti Group has received a revised takeover offer from the Morrison & Co and Brookfield Infrastructure consortium of $5 per share, up from a previous bid of $4.50 per share. Ord Minnett notes Uniti Group is exclusively engaging with the offer and has not engaged with a competing offer from the Connect consortium.
The broker finds Uniti Group’s assets, including private fibre assets, a more than 290,000 premise pipeline and high margin network revenues, demand a multiple at the mid to high end of the 15.5-28.0x multiple range achieved by recent telco infrastructure purchases.
The rating is upgraded to Accumulate from Hold and the target price increases to $5.00 from $4.05.
In the not-so-good books
Evolution Mining Limited (EVN) was downgraded to Sell from Neutral by UBS
UBS has revised its price forecasts for commodities (see Fortescue Mining above).
Evolution Mining is one of the broker’s least preferred exposures in its coverage of the mining sector. The broker downgrades its rating to Sell from Neutral, while the target price rises to $4.23 from $3.65.
Newcrest Mining Limited (NCM) was downgraded to Neutral from Buy by UBS
UBS has revised its price forecasts for commodities (see Fortescue Mining above).
For Newcrest Mining, UBS lowers its rating to Neutral from Buy and raises its target to $27.10 from $26.50.
Woodside Petroleum Limited (WPL) was downgraded to Neutral from Buy by UBS
UBS raises its 2022 Brent oil forecast to US$95/bbl from US$81/bbl. For 2023, the estimate climbs to US$85/bbl from US$80/bbl and then to US$80/bbl from US$75/bbl for 2024, while US$75/bbl is unchanged for 2025.
All changes are driven by impacts from the Russia/Ukraine conflict, explains the analyst, and the long term (from 2026) Brent forecast also rises to US$75/bbl from US$70/bbl. UBS also increases its JKM LNG forecast by 14-108% between 2022-24.
Nonetheless, the broker downgrades its rating for Woodside Petroleum to Neutral from Buy as shares are approaching full valuation. The price target rises to $34.60 from $29.
The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stockbrokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS. Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
