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Johannesburg - Absa Capital has downgraded the African precious
metals industry to “negative” from “neutral,” and said sector profitability and
returns will likely remain at historically low levels partly due to rising
capital costs.
South African platinum producers face the dual challenges of
sustained high levels of unit cost inflation and weak metal prices, Absa said,
cutting its price target on Impala Platinum Holdings [JSE:IMP], Anglo Platinum
[JSE:AMS] and Northam Platinum [JSE:NHM].
“In the context of weak gross demand growth and growth in
recycling supply, we expect platinum metal markets to remain in surplus,
limiting metal and equity price performance,” analyst Andrew Byrne wrote in a
note to clients.
The market is currently underestimating the challenges that
platinum group metals producers are facing, said Byrne, who expects average
consensus earnings estimates will need to fall by 24% for fiscal 2012 and 31%
for fiscal 2013.
Byrne also cut his price target on Aquarius Platinum
[JSE:AQP] and Lonmin [JSE:LON], and downgraded Eastern Platinum [JSE:EPS] to
“equal-weight” from “overweight.”
He prefers “overweight“-rated Impala, the world’s second-largest platinum producer, given its strong balance sheet, cost control and sustainably superior returns versus sector peers.
