Citigroup turns bullish on Western European miners

5th Dec 2016 11:12

(ShareCast News) - Citigroup adjusted its ratings on a number of mining stocks on Monday as it upgraded its view on the Western European metals and mining sector to 'bullish' from 'bearish'.The bank said it now sees a more robust outlook for next year for the commodity complex, especially the bulks, leading to cash flow and earnings upgrades along with higher forecast dividend yields."Moreover, short term, commodity prices have been firmer for longer this year which has resulted in substantial balance sheet repair for the miners. The miners also appear to be holding down capex for longer and the inflation pressures that we expected to build are being cushioned by weaker producer currencies against a stronger US dollar which is proving to be a fillip for the companies."It upgraded Anglo American to 'neutral' from 'sell' and lifted the price target to 1,350p from 830p, saying the upgrade was part of the much more positive overall sector view it has adopted."Caution around the near-term outlook for diamonds due to demonetization in India and medium term outlook for platinum due to challenging auto catalyst outlook however remain."The target price increase is driven by significant earnings upgrades from higher commodity prices and a lower Australian dollar, which have also increased the net present value to 1,430 a share from 1,250p.The bank upgraded Glencore to 'buy' from 'neutral' and upped the price target to 330p from 220p as it pointed to the dividend reinstatement, strong cash generation and a solid commodity mix.Citi upped Rio Tinto to 'neutral' from 'sell' and pushed the target price to 3,300p from 2,550p."We expect strong 2H cash flow generation to drive gearing below the targeted 20-30% range by end-16 (17%), which opens the debate about capital management in 2017. Assuming a 50% payout ratio leaves $6bn of excess capital (more than 8% of market cap) that could be returned in 2017, with a further $2.6bn in 2018 (around 3.5% of market cap)."The bank upped BHP Billiton to 'buy' from 'sell' and lifted the price target to 1,500p from 1,100p, and South32 to 'buy' from 'sell' with an increased price target of 200p from 140p.