🕐14.03.14 - 09:54 Uhr

INVESTEC: KAZAKHMYS : CHANGING THE FUTURE OF THE BUSINESS - HOLD



Kazakhmys (Price: 301p | Target: 294p | Rec: Hold) Kazakhmys pleased the market by outlining plans to improve the core copper business, with its shares rising by around 30% on the day.

We note Kazakhmys’s resilience to the recent copper price decline and attribute this to the market digesting the revised plans.

We have made material changes to our model and, in doing so, our target price is up from 158p to 294p.

We upgrade our rating from Sell to Hold. * Tackling the problem: In proposing to separate the poorer performing Zhezkazgan and Central regions into a separate corporate entity, Kazakhmys has presented a sensible solution to its asset portfolio problem – one which has resulted in us increasing our estimate of the company’s value by almost 90%.

While this year is likely to remain challenging for the business, we have lifted our FY14E earnings estimate from -59c/share to 12c/share as a result of the company’s near-term cost control measures and the weakened Kazakh tenge.

We expect EPS to rise in FY15E onwards as the poorer businesses are removed and the two growth projects come into production. * Valuation and recommendation: We lift our target price, based on a risked NPV, from 158p to 294p and upgrade our recommendation from Sell to Hold. * Risks: In our view, the Kazakhmys shares remain above-average risk for several key reasons.

Firstly, as our sensitivity analysis shows, the valuation is very sensitive to changes in future copper price assumptions.

We note the extremely volatile copper price in recent days, which we discuss inside.

The group must deliver its Bozshakol and Aktogay projects on time, and the budget for Aktogay is now under review.

While we believe a separation of the Zhezkazgan and Central assets into another corporate entity makes sense, this deal would still be subject to independent shareholder approval.
To access the full note please click here Analyst: Louise Collinge +44 (0)20 7597 5779
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