Fresnillo may not pay a final dividend for 2014, says UBS

18th Feb 2015 09:50

UBS has lowered its target price for Fresnillo, saying that the Mexican precious metals miner's final dividend payout for 2014 is "uncertain".The bank cut its 12-month target for the shares from 950p to 850p and retained a 'neutral' recommendation for investors.Fresnillo last week updated the market about a number of one-off items that will have a net adverse impact of $147m on underlying earnings for the financial year 2014 (FY14).Ahead of the company's annual results on 4 March, UBS has cut its estimates for earnings per share (EPS) for 2014 from 22.6 cents to just 9.7 cents.The bank highlighted that Fresnillo's regular dividend has been based on the company paying out 50% of net income excluding revaluation impacts from its Silverstream operations.However, with UBS' revised EPS forecast now standing at just 9.7 cents, it pointed out that Fresnillo's interim dividend of 5.0 cents already represents a 50% payout ratio for the full year."Given the expectation that FRES will move to a net debt position at end FY14 and after payment of ~$215m of special dividends in FY13 (prior to new Mexican Tax legislation in 2014), we believe it is possible that FRES' board will elect not to pay a final dividend for FY14," UBS said. It estimates Fresnillo to be in net debt of $580m compared with a net cash position of $328m at the half-year stage."FRES continues to offer high quality equity exposure to silver/gold price upside and we admire its strong growth profile and lower cost assets over the medium-term. However, lingering operating issues experienced in 2013/1H14 are expected to impact operations in FY15 whilst peak capex will result in negative free cash flow and rising net debt in FY15E."The stock was more or less flat at 836p by 10:17.