Mining stocks set for rebound, says Deutsche Bank

(Sharecast News) - Deutsche Bank revised its ratings on London-listed miners on Wednesday as it said stocks were due a rebound after the summer selloff.

"Like most cyclical sectors, mining corrected sharply through the summer months," it said. "Risk appetite has collapsed and global growth fears are back at the forefront. While uncertainty and macro risks are high, we see scope for a tactical rebound on a six month horizon."

DB added that iron ore prices have reset to more realistic levels and valuations are now someway below its mid-cycle targets.

"Our mining valuation composite is now sending a clear buy signal; buying at current valuation levels has yielded an average six-month return of 23% and the sector has moved up in relative and absolute terms on every occasion," it said.

"The pervasive fear in the market is that we enter a 2015 type slowdown which saw negative China and global steel demand for several quarters. While we expect a deceleration in China steel demand in the year ahead (2% in 2020 from 5% in 2019) we think a 2015 style slowdown is an overly pessimistic scenario."

The bank said Anglo American remains its top pick. "The business is well diversified, valuation compelling and, at the current share price, the market is getting the 30% growth by 2022E almost for free."

Deutsche upped its stance on BHP Group to 'hold' from 'sell', cutting the price target to 1,750p from 1,900p following the recent share price correction.

"Our view that BHP lacks structural growth drivers is unchanged, however, capital discipline is holding and dividend levels should remain robust through the cycle," it said.

It downgraded its rating on shares of Chilean miner Antofagasta to 'sell' from 'hold', reducing the price target to 820p from 930p.

"While we realise that ANTO is one of the few large scale, low risk copper producers globally - and we expect the company to maintain its premium valuation - the shares have materially outperformed this year," DB said.

It added that 2019 represents a peak year from a volume and cost perspective. From next year, it expects lower volumes, lower margins and higher capex.