Broker snap: UBS downgrades Fresnillo after strong run

2nd Sep 2013 08:10

UBS has cut its recommendation for precious metals group Fresnillo from 'buy' to 'neutral' following the stock's recent strong performance.In August alone, the share price rose 27%, outperforming a 17% increase in the silver price and a 7% rise in gold."When we initiated [coverage] on August 12th, our view was that in uncertain gold and price environment, low-cost, low-risk producers expected to continue to generate free cashflow at depressed silver and gold prices should continue to outperform," said analyst Daniel Major.While he still thinks that Fresnillo meets these criteria, the valuation is now looking "stretched" and less attractive after the stock's recent performance. The shares are trading at an "expensive" 36 times forward earnings, compared with its historical average price-to-earnings multiple of 21.Nevertheless, the broker's overall stance on the stock remains upbeat."We continue to like FRES low cost position, growth profile, low corporate governance and country risk and strong balance sheet. As a result we believe the stock deserves to trade at a premium to its precious metal peers."As for metals prices, the outlook for silver and gold remains uncertain, Major said: " upside risks surround further escalation of political tensions in the Middle East and higher oil prices; downside risks surround the potential announcement of QE tapering at the FED meeting on September 18th."UBS has maintained its 1,250p target price for the stock.The stock was up 1.46% at 1,322p in early trading on Monday.BC