UBS ups Randgold to 'buy' after underperformance

UBS upgraded Randgold Resources to ‘buy’ from ‘neutral’ with an unchanged price target to 9,750p on the back of share price weakness and strong momentum in the second half of 2016.

UBS said that following a correction of more than 20% from the stock’s July 2016 peak, the risk/reward is now attractive, hence the upgrade.

The bank said it reckons Randgold can meet full-year 2016 production guidance, which will provide the group with strong operating momentum in the second half versus low market expectations.

UBS said two consecutive quarters of weak operating performance have left investors questioning the company’s reputation as a reliable operator that warrants a premium valuation.

The bank, however, said it was encouraging that Randgold provided very clear details in the second-quarter results on throughput/grades/recoveries required at each asset in the third and fourth quarter to achieve the FY16 group production target of 1.25moz.

“We also believe the market underestimates the potential for a material lift in the 2017 dividend that would clearly differentiate Randgold from its global gold mining peers.”

In addition, the bank said it likes Randgold’s low cost position, stable medium-term production, full year 2017 free cash flow and strong balance sheet.

At 0830 BST, Randgold shares were down 0.4% to 7,650p.