AZ takeover candidate in 2018 ? ------------------------------------------------------------------------------------------------------------------
“After the industrial commodity price surges of 2016 and 2017, we believe 2018 will be a year of pause and heightened uncertainty. We expect demand drivers in China to moderate, as we expect the focus on corporate deleveraging to increase, and real estate completions and Fixed Asset Investment to slow. Offsetting this to some extent, we expect consumption from the transportation and consumer sectors to improve. Outside of China, we expect demand to continue to improve on the back of ongoing global growth, particularly in EMs where central bank policies remain accommodative. We expect higher demand uncertainty in 2018, as concerns increase around the stage of the investment-driven expansion, the Chinese property market, potential deleveraging efforts in China and over-tightening by the US Federal Reserve. On the supply side, we expect a repeat of 2017 in terms of potential supply-side shocks, with numerous wage negotiations in Chile and Peru (copper), the potential for weather-related disruptions in H1/18 (coking coal) and ongoing (but easing) tightness in supply (zinc and copper).
Mr. Baretto said 2017’s surge in industrial commodity prices placed the focus on growth in the eyes of both investors and corporations. He sees M&A as a key factor in achieving growth.
“As such, we favour AZ and TRQ over 2018 as prime acquisition candidates,” he said. “Considering more fundamental factors, however, we prefer TECK for its combination of commodity diversity, significant forecast free cash flow generation over 2018, and very reasonable absolute and relative valuation. In the small cap space, we prefer CS as we expect a better operating year versus 2017, along with an un-hedged sales book and a reasonable valuation relative to its peers. In the silver producer space, we continue to like PAAS for its size, asset quality, base metals exposure and pristine balance sheet.”