Deutsche Bank disagrees with analysts on Southern Copper
2022.11.23 12:13
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Deutsche Bank disagrees with analysts on Southern Copper
Budrigannews.com – Southern Copper Corp. Deutsche Bank analysts downgraded the stock from Hold to Sell on Wednesday, setting a price target of $45 per share.
The analysts argued that the stock’s valuation is extraordinary despite its normal growth and returns.
“Due to a rise in copper prices and the relatively consistent Q3/22, Southern Copper (SCCO) shares have outperformed peers over the past month, rising 23% against peers’ gains of 14%.Copper and zinc production were downgraded by 50Kt and 30Kt, respectively, in the updated guidance for 2023 and beyond, indicating that the company is struggling to get its operations back on track following the disruptions caused by COVID.
Additionally, the cash cost guidance was increased by 10%.We anticipate an increase in sustaining capex and operating expenditures to get the operations back on track because we believe these issues are not “one-off.”SCCO is exchanging at a higher cost than expected to peers on spot (2023e EV/EBITDA of 11x versus peers at ~8x), which looks outlandish to us given issues around its development projects,” the experts made sense of.
They added that the company’s growth flexibility was a major factor in its higher valuation compared to peers;
“We estimate that SCCO’s projects’ net asset value (NAV) is $4.3 billion, or 12% of its market capitalization.”However, we believe that, with the exception of El Pilar, which is currently under construction, the remaining projects are unlikely to move forward anytime soon due to permitting delays caused by community and environmental issues.
We estimate leveling creation (creation CAGR of 2.5% for 2021-25 versus a 4% CAGR in 2015-21). Additionally, projects have fallen into the second or third quartile due to operational underperformance and inflation, which appears unlikely to change soon,” the analysts added.
Deutsche Bank believes that the premium is unwarranted as a result of the “growth projects facing consistent delays, cost positioning deteriorating, and subpar cash returns.”
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