Morgan takes axe to miners’ valuations 7th November 2008, 8:00 WST
Australia’s mining sector has suffered another blow after heavyweight investment bank Morgan Stanley took a blowtorch to the valuations of a raft of miners, including Fortescue Metals Group, OZ Minerals and Newcrest Mining.
In a bleak research note titled A Year of Pain Ahead, Morgan Stanley analysts Craig Campbell and Cameron Judd said they were adopting recession-era multiples to value Australian mining companies in light of plummeting metals prices and the bank’s high expectation of pending asset write-downs.
Morgan Stanley said it did not expect metal prices to recover until the second half of next year. The analysts downgraded profit forecasts for top-tier miners, including Fortescue, OZ, Newcrest, Alumina and Lihir Gold as much as 98 per cent, with an average cut of 28 per cent.
Highlighting that short-term debt funding was a risk, in particular for Fortescue, Alumina and BlueScope, and that asset impairment charges (Fortescue and Alumina) were likely over the next 12 months, the analysts said capital expenditure budgets and dividends would also come under pressure (BlueScope, OZ, Alumina).
Morgan Stanley’s preference is for coal stocks.
Lihir (target price slashed 56 per cent to $1.94 versus a $2.02 close last night), Newcrest (down 42 per cent to $23.31 versus $21.40 close) and Fortescue (off 59 per cent to $1.84 versus $2.71 close) copped the brunt of Morgan Stanley’s bearish outlook.
OZ was reduced 24 per cent to $1.41 (versus a 95¢ close), BlueScope 26 per cent to $6.08 (versus $4.55 close) while Alumina was trimmed 38 per cent to $1.61 (versus $2.50).
AQA Price at posting:
$3.32 Sentiment: None Disclosure: Not Held
