Broker snap: Fresnillo a 'buy' after recent falls, says UBS

7th Oct 2013 10:51

Precious metals group Fresnillo was among the few risers on the FTSE 100 on Monday morning after UBS raised its rating for the stock from 'neutral' to 'buy', saying the recent weakness in the stock provides a buying opportunity.The bank said: "Since we initiated in August we have highlighted attractive long-term value potential in Fresnillo. However, we downgraded to 'neutral' in September believing stretched valuation multiples would limit medium-term upside. Following recent weakness we believe the valuation is more attractive." The stock has fallen by 30% since the end of August: it is now trading at less than one times net present value and the forward price-to-earnings multiple has contracted from 40 to 27.UBS believes that Fresnillo should trade at a premium to others in the precious metals sector due to its low-cost position, growth profile, low corporate governance and country risk, as well as a strong balance sheet."Despite limited material near term stock specific catalysts, at current levels we believe FRES offers attractive long term value and a relatively low risk option for investors to gain exposure to near-term upside to gold and silver prices."According to UBS' commodity expert Julien Garren, sentiment surrounding gold prices follows the market's expectations of what the Federal Reserve will do in six to 12 months' time."He thinks deteriorating markets & macro [environment] in the fourth quarter of 2013 will get gold investors anticipating another round of Fed reflation at some point in 2014, and that would be bullish for gold, and by extension silver."The 1,150p target price was unchanged.The stock was up 1.42% at 926.5p on Monday morning.BC