Broker snap: Nomura cuts coal price estimates, slashes Bumi target

25th May 2012 10:56

Nomura has cut its target price for FTSE 250 miner Bumi by 140p after reviewing the impact of lower estimated prices on the Australian coal industry."In the near term, the risk is that coal growth projects are pushed back, as the majors can afford to be more disciplined. Ultimately, this could lead to higher long-term prices; yet, in the short term, we see headwinds," the broker said in a research note on Wednesday.It said that potential for meaningful surpluses in the short- to medium-term means that near-term thermal coal prices have been cut by around 15%."Lower prices, continued cost and capex inflation, in addition to new taxes, have increased pressure on margins for the Australian coal sector. [..] Therefore, at a time of increased competition for growth capital, development projects (especially for export thermal coal) are likely to be more challenging. This lower growth incentive is expected to lead to uncommitted project deferrals."The greatest impact of lower assumed prices will be on Bumi and Anglo American (neutral) , who have the greatest leverage to coal prices.As for Bumi, while Nomura believes that its operations are of high quality, it highlights a number of setbacks including the most recent shareholder dispute and management shake-up. Debt issues at PT Bakrie, which owns around 24% of Bumi, have also lead to "investor concerns". Meanwhile, refinancing at PT Bumi (in which is owns a 29% interest) also remains a focus of management.Nomura reiterates its neutral rating on the stock but lowers its target price from 1,000p to 860p.While the broker does not recommend direct coal exposure, its sector preferences are for BHP Billiton and Rio Tinto, both rated a buy.BC