Broker tips: Miners, Tate & Lyle

7th Jan 2010 14:32

Cazenove remains ‘overweight’ on the mining sector and expects some aggressive increases to consensus EPS forecasts for 2010. Last year was a ‘tremendous’ one for mining stocks and the broker believes some favourable, ‘albeit slightly tired themes’ remain, like BRIC economic growth, infrastructure spend, US/European restocking and supply issues amongst the macro drivers. ‘The biggest recent positive driver has been the massive injection of money into commodity focussed funds and perhaps the key question will be how long this can continue,’ says Caz. ‘Our intuitive view would be for at least six months or until global interest rates begin to rise, which feels unlikely until tangible signs of Western industrial demand and/or inflation emerge.’ There are three recommendation changes. Vedanta is raised to ‘outperform’ from ‘in-line’ on valuation grounds and growth, while BHP Billiton is cut to ‘in-line’ from ‘outperform’ and ENRC to ‘underperform’ from ‘in-line’. Rio Tinto, Xstrata and Antofagasta stay as ‘outperform’ based on growth potential, commodity exposure and valuation, with Kazakhmys rated the same on valuation grounds. Anglo American, Fresnillo and Lonmin are kept as ‘in-line’.The annual round of price setting for sweeteners is not going so well, Credit Suisse reckons, prompting the Swiss bank to downgrade Tate & Lyle. With sweetener prices expected to be down by around 15%, Credit Suisse (CS) has chopped its earnings forecast for fiscal 2010/11 by £20m for sugar and sweeteners firm Tate & Lyle (T&L). CS’s earnings per share forecast for the Splenda sweetener maker has been trimmed accordingly by 6%. ‘With pricing down 15% and raw materials flat, we have lower profits than we were originally expecting,’ explained CS analyst Charlie Mills. Despite downgrading the stock from ‘outperform’ to ‘neutral’, CS has left its price target unchanged at 550p, though it has removed it from its focus list ahead of the T&L trading update on 28 January.