Antofagasta downgraded to 'hold' from 'buy' by Canaccord

Antofagasta shares dropped on Thursday as Canaccord Genuity downgraded the stock to ‘hold’ from ‘buy’ and lowered its target price to 475p from 550p.

Canaccord said changes to the Chilean tax regime through 2018 may pressure Antofagasta’s net margin and dividend.

“The company has a stated payout ratio of 35% now, but on our forecasts of a lower net margin going forward we think only a 2% dividend yield is likely through 2018,” according to Canaccord analysts Tim Huff and Nick Hatch.

“We do not see the potential for Antofagasta to return to a +3% dividend yield until after 2018.”

The analysts said while they see potential for operational progress in the coming three years at Antofagasta, tax pressures will weigh.

They said signs of a greater cost focus at the half year stage would be positive for the stock under Ivan Arriagada, who was appointed chief executive in April.

“While the stated strategy remains unchanged at Antofagasta, we see potential for Ivan to take on a greater cost focus in the coming 2-3 years.

“While the past four years have been focused on portfolio repositioning and necessary (but unpopular) capex spend in a downturn, Antofagasta could now be well positioned to deliver moderate volume growth and cost consolidation.”

Shares plunged 6.20% to 423.70p at 1026 BST.