KGHM – Copper Outlook Improves As Trade Tensions Ease
The US and China reached a preliminary trade deal on Friday, 11 October – a positive turn of events which could convince investors to reduce bearish bets in commodities, resulting in an upward shift in prices of industrial metals, including copper. This after an extended period of downside trade tensions which led to a build-up of short positions by speculative investors. As of this writing the short position held by copper speculators totals -48,000 contracts, the fourth-highest weekly print this year and a level just short of an all-time high. A delayed threat of a tariff increase might restore the faith of investors in a recovery in global copper demand, especially when set against weaker production numbers for this year (-1.4% y/y in H1 2019), underpinned by disruptions in the past month at mines in Chile and Peru that account for a combined 570,000t, or 2%-3%, of annual world supply. We decided to raise our 2020-2021 copper price forecasts to $6,450 and $6,700, respectively, per tonne, as well as upgrading the outlook for gold (to $1,350/oz) and silver (to $16.5/oz). At KGHM, the zloty's depreciation versus the US dollar observed since the beginning of October is a source of additional upside. With all this in mind, we upgrade KGH from hold to accumulate, and we raise our target price from PLN 77.51 to PLN 90.12 per share based on the adjusted earnings outlook and updated peer ratios.
KGHM Polska Miedz is engaged in the mining of copper and non-ferrous metals ore; the excavation of gravel and sand; the production of copper, precious and non-ferrous metals; the production of salt; the casting of light and non-ferrous metals; the forging, pressing, stamping and roll forming of metal- powder metallurgy; waste management; wholesale based on direct payments or contracts; warehousing and storage of merchandise; holding management activities; geological and exploratory activities; general construction activities with respect to mining and production facilities; scheduled and non-scheduled air transport; telecommunication and IT services; and other activities.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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