Broker snap: 2015 could be 'fillip year' for miners, says Citigroup

2nd Dec 2013 16:23

Citigroup on Monday maintained its 'neutral' rating on the metals and mining sector, but recommended investors to position themselves for a 'fillip year' for the industry in 2015.The bank kept its cautious stance on the sector on a six-month view after it underperformed the wider FTSE 100 for the third year running in 2013. Analysts pointed out that in 2013 so far, mining has underperformed the wider FTSE 100 by around 24% despite boardroom shake-ups, reductions in spending and a focus on costs.Looking ahead to 2014, the sector is expected to perform 'in line' during the first half "driven by a near-term slowdown in China and a muted commodity price outlook". However, equities could potentially deliver a strong performance in the second half of 2014 based on free cash-flow, cost cutting and volume growth "as the market looks into 2015"."We see 2015 as a potential fillip year for the mining industry and we think that investors should position themselves for this by mid-2014," the bank said.Citi forecasts a sector-average compound annual growth rate (CAGR) in earnings of around 7% until the end of the decade, "driven principally by volume growth and cost cutting rather than by commodity prices". Free cash-flow yields are expected to grow at a CAGR of 23.9% during this time, due to cut-backs in capital expenditure."Overall, we estimate the sector is trading at an approximate 10% price-to-earnings discount to the UK market, with Rio Tinto remaining the cheapest name on a relative basis," the bank said. A 'buy' rating was maintained for the stock, with Glencore Xstrata also among its top picks in the sector."We remain underweight the gold and base metals stocks and our least favoured name among the large-cap miners is Anglo American."BC