Berenberg lowers target on Polymetal, cites stronger rouble
Analysts at Berenberg lowered their target price on shares in precious metals mining outfit Polymetal shares from 1,480p to 1,420p on Friday but noted that the group remained one of its "favoured names" in the gold space, adding that it saw potential for a special dividend.
Berenberg said its preference of Polymetal was a result of the group's asset quality, a strong growth profile, falling costs, attractive free cash flow and deleveraging profile and a strong management team.
While the German bank noted that 2019 ended on a stable note, with production meeting upwardly revised guidance, Polymetal said in both its fourth-quarter trading update and conference call that it was experiencing cost pressures - mainly in the form of a stronger rouble and higher local diesel costs.
As a result, Berenberg adjusted its model to reflect "slightly higher" costs, which had a negative impact on its 2020 full-year earnings estimates.
"Due to a mixture of higher costs and a weaker sterling since our last publication, our price target reduces to 1,420p per share; with a FY 2019E dividend yield of c4%, we calculate total upside of 17%," said Berenberg, which also stood by its 'buy' rating on Polymetal.
"While management may be more conservative on the quantum, we think that the supportive gold price environment, coupled with the strong free cash flow generation, supports the potential for a special dividend to be announced."