Credit Suisse has revised its target prices across the mining sector lower after cutting its commodity price estimates; as part of this review, the broker has downgraded its rating for BHP Billiton.
The broker said that decelerating global growth and falling risk appetite have taken their toll on commodity prices recently.
"Commodity prices have fallen sharply in recent months with many (PGMs, steel, thermal coal, nickel, aluminium, US natural gas) now digging into the cost curves suggesting fundamental price support as long as demand recovers," the broker said in a research report on Thursday.
While Credit Suisse expects a gradual recovery in global growth over the next 12 months and expects prices to recover by 10-20% - helped by fiscal and monetary stimulus - it has cut its commodity price estimates for 2012/13 by 10-20% with the sharpest decreases to thermal coal, oil, aluminium and platinum group metals (PGMs).
"With China growth and commodity demand structurally slowing the earnings outlook is muted with on-going cost pressures and minimal top line growth; we forecast earnings down 20-30% year-on-year in 2012 and small growth in 2013.
"Given the structural headwinds to earnings we believe investors should be selective and look for stocks that offer a strong combination of volume growth catalysts, good assets and lower execution risks."
The broker labels Rio Tinto as its top pick from the large caps and has maintained an 'outperform' rating.
As for BHP Billiton, Credit Suisse believes that its valuation is not compelling and reckons that the company may disappoint on capital expenditure/cash returns over the next year. The stock has been downgraded from 'outperform' to 'neutral'.
Ratings and target price changes for the stocks under the broker's coverage are as follows:
African Minerals - Credit Suisse cuts target from 800p to 740p, 'outperform' rating kept.
Anglo American - Credit Suisse cuts target from 2,900p to 2,500p, 'neutral' rating unchanged.
Antofagasta - Credit Suisse cuts target from 1,300p to 1,150p, 'neutral' rating kept.
Aquarius Platinum - Credit Suisse cuts target from 85p to 55p, 'neutral' rating kept.
BHP Billiton - Credit Suisse downgrades from 'outperform' to 'neutral', target cut from 2,460p to 2,100p.
ENRC - Credit Suisse slashes target from 900p to 500p, 'outperform' rating kept.
Ferrexpo - Credit Suisse cuts target from 350p to 270p, 'neutral' rating kept.
Kazakhmys - Credit Suisse cuts target from 1,100p to 800p, 'underperform' rating kept.
London Mining - Credit Suisse cuts target from 530p to 470p, 'outperform' rating kept.
Lonmin - Credit Suisse cuts target from 850p to 740p, 'underperform' rating kept.
The mining sector as a whole was trading 1.99% lower on Thursday morning.
Aberdeeen Asset Management: Morgan Stanley raises target price from 478p to 548p retaining an overweight rating. Bank of America ups target price from 455p to 475p and leaves its neutral rating unchanged. JP Morgan increases target price from 532p to 573p and maintains an overweight rating. Citigroup ups target price from 455p to 470p, while its neutral rating remains unchanged. UBS moves target price from 500p to 520p and retains a buy recommendation. Jefferies revises targe [30 Apr '13]
African Minerals: Deutsche Bank reduces target price from 594p to 586p keeping a buy recommendation. Investec cuts target price from 438p to 411p, while its buy recommendation remains unchanged. [11 Apr '13]
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