EMEA copper: KAZ over KGHM on FCF generation (reinitiating on KAZ with a BUY, KGHM stays HOLD)
In this report, we increase our copper price forecasts by c.20% in 2018-22E, 7% in the long term but maintain our HOLD rating on KGHM, with an 8% lower price target (PT) of PLN 110/share (the stronger PLN, lower production, higher capex, and wage inflation guidance offset the higher copper price). We reinitiate coverage of KAZ Minerals, with a BUY rating (PT GBp 973/share). We see KAZ as a superior operator, more than tripling production in the last two years. With assets at the bottom of the cost curve and capex falling, we expect the company to rapidly de-lever and potentially start paying high dividends. Its FCF yields, in excess of 18% from 2019E, suggest to us that more value exists in KAZ today than is the case for KGHM. For KGHM, we see the company struggling to reach 10% FCF yields in 2018-20E, even on our optimistic price outlook.
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.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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