UBS downgrades Fresnillo to 'sell'

UBS downgraded precious metals miner Fresnillo on Thursday to ‘sell’ from ‘neutral’ and cut the price target to 850p from 900p.

The bank said consensus costs are too low, there are risks to silver guidance and the valuation is stretched.

UBS said operational issues and guidance downgrades have caused Fresnillo to underperform gold peers by around 75% over the seven last years, since it started missing/downgrading guidance, resulting in some de-rating.

It noted the shares are now trading at 7-8x estimated 2023 EBITDA versus a 2011-20 average of around 14x.

"However 8x EBITDA remains a premium multiple versus gold peers and in our view it is too early to say that Fresnillo’s operational challenges are behind them."

UBS said it has "high conviction" consensus for 2H22 and 2023 costs is too low, reckons 2023 silver production guidance may be too high and continues to see a risk of downgrades to reserves and resources.

"In our view upcoming production results (25 Jan) and financial results (7 Mar) will act as negative catalysts for the stock," it said.

At 1250 GMT, the shares were down 5.5% at 890.22p.