Morgan Stanley ups Fresnillo to 'equalweight', says more fairly priced

The bank said the modest de-rating of the stock leaves the equity better priced to reflect continued risks to projects already in execution and potential for further deferral of additional growth.

MS added that Fresnillo's growth plans are ambitious, with 40% silver volume growth planned from 2016 to 2018. It said that while execution risk around this growth remains elevated, it is now more fairly reflected in the valuation.

“Fresnillo’s 2017 spot EV/EBITDA multiple has dropped from 20x at the end of July to 14.7x now. It remains fully valued versus the rest of sector with only Randgold coming close at 13.6x, but the multiple reflects the potentially superior growth profile and cost position versus peers.”

Morgan Stanley said current spot prices are likely to be sufficient to justify further project approvals, meaning the likelihood of further delays to growth plans has subsided.

MS said its commodities team has lifted silver price forecasts by 7%, 13% and 8% for 2016-2018. This drives an earnings per share increase of 12.5% on average for the next three years at Fresnillo and is the key reason for the bank’s price target increase.

At 1425 BST, Fresnillo shares were down 0.3% to 1,784p.