Barclays sees up to 82% upside in Kaz Mineral shares

Barclays upgraded its view on KAZ Minerals on Thursday, telling clients the recent pullback in the stock had opened-up an unusually large valuation gap relative to peer Antofagasta.

Yet following Kaz's recent restructuring, it was "fundamentally" changed; indeed, the broker's analysts argued it was now a superior business from several standpoints.

Those included its cost position, free cash flow conversion and growth potential.

As a result, the broker decided to up its view on KAZ shares to 'overweight'.

The outlook for the price of copper was also incerasingly compelling, they said.

"Rising inflation is strongly correlated with higher copper prices over the last 60 years: every 10% change in copper is 20% on KAZ EPS, all else equal."

The shares' return to their August 2017 levels also made them much more attractive, the analysts said, having pushed the price-to-earnings discount for the shares relative to rival Antofagasta from its historical level of 32% to 54%.

Thus, even a simple mean reversion in the discount would entail a 22% jump in the share price, they said - the main driver of their 1,015p target price.

Should the discount narrow even further, on the back of Kaz's improved fundamentals, reaching parity with Antofagasta for example, that would imply a target of 1,442p, which was Barclays's 'upside' case.