Shares exposed to copper could increase in 2021 and a buying opportunity could be on the way, analysts Morgan Stanley said on Monday.
Copper prices HG00,
accumulated at the end of last year and by 2021, reaching $ 3,696 per pound – the highest level since 2013, after falling to a four-year low in March 2020. Shares exposed to copper have enjoyed a recovery, but Morgan Stanley said there are still more to come.
Despite the average total shareholder return of almost 63% since the beginning of 2020, investment bank analysts said they continue to see a positive risk reward for shares exposed to copper.
They cited a number of headwinds, including an accelerated economic cycle and expected reflection, which “strongly favors copper”.
“As such, we claim that there is an additional 30% increase in current share prices, if spot prices persist until 2021,” they said in a note.
Read: Here is what is in store for industrial metals after the 2020 rally for steel, iron ore and copper
The role of copper in the global shift to a low-carbon economy was another reason to be positive. Its position as a key driver of the decarbonization and electrification transition provides a “compelling secular growth angle as investors’ focus on climate change continues to grow,” analysts said.
“In this context, we will use the potential volatility of the market around the Chinese New Year next month as a buying opportunity with a 2Q21 outlook in sight,” they added.
When it comes to the top elections for 2021, Morgan Stanley preferred mining and trading giant Glencore GLEN,
common metal miner Lundin Mining LUN,
and mining and metals company First Quantum FM,
They said that despite last year’s strong gains, they still saw attractive opportunities because “a close fundamental picture is still stimulated by bullish macro-leaders.”
According to analysts’ assessments using hypothetical fair values and earnings in 2021 based on spot prices, Glencore shares rose 67%, Lundin 34% and First Quantum 31%. In the case of Morgan Stanley, with the bow of 4 USD per pound, those benefits increased to 93%, respectively 61% and 54% respectively.
Glencore, listed on the FTSE 100, has an attractive mix of commodities, with exposure to base metals and a compelling valuation, they said, valuing the overweight stock with a price target of 274 pence. Lundin has “the most compelling story of change” and a potential for reorientation, with an improved operational momentum that will continue in the first half of 2021 and a possible increase in dividends around the corner. First Quantum would also benefit from “extending the post-COVID copper demand recovery” and its proactive cash management.
Read: The commodity bull market? “This ship sailed,” says Goldman’s Currie
Glencore and Lundin are also trading at a significant discount, offering a valuation buffer “should metal prices eventually recede,” they said, while First Quantum also has “sufficient margin for valuation.” ”.
Analysts say risks are being created for Antofagasta ANTO,
and Boliden BOL,
– both had an equal share – before future revenues. Antofagasta could disappoint in terms of cash costs and 2021 capex guidance due to currency exchange winds and project revisions, while Boliden could raise its capex outlook on projects and “overwhelm special dividends”.