KGHM – Metals Rally Boosts Outlook
The price of copper has rebounded on high demand from China, where purchases in the year to date are up by 7% compared with the same period a year ago, driven by a fast-paced recovery in manufacturing activity and infrastructure construction. Amid bullish sentiment, speculative copper traders keep increasing their net long positions (currently at +39,000 contracts versus -46,000 in mid-February). This is accompanied by a rally in silver markets and record-high inflows to precious metals funds (with $3.8bn invested in the week of 22 July – the second-largest-ever weekly inflow). From the standpoint of KGHM, the shift in metal markets signals a major earnings boost in the second half of 2020, with profits growing at a projected average annual rate of 42%, facilitating a net debt reduction to about 0.8x EBITDA by the end of the year. The current rally also prompts us to adjust our initial (rather conservative) price outlook for the 2020-2022 period by raising the average estimate for copper by 6% and upgrading the expectations for silver by 30%. Accordingly, we also raise our FY2020 forecasts for KGHM by assuming 13% EBITDA growth and an 89% rebound in net profit. Finally, we revise our target price for KGH upward from PLN 62.94 to PLN 124.67 per share, and we upgrade the stock from sell to hold.
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.
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