In a research report titled Grey skies are gonna clear up (Put on a happy face), Canaccord Genuity’s Dalton Baretto expressed optimism for the fortunes of base metals producers moving forward.
“Q1/23 was an eventful quarter, from both a macro and micro perspective,” said the analyst. “2023 kicked off with an unleashing of the ‘animal spirits’ in the market, with a significant rally in commodities and related equities predicated on the Chinese economy re-opening, a declining USD, anticipation of a Fed pivot, and ongoing supply disruptions. We then saw an inflection point in the early part of February as essentially all these factors reversed.
“Looking out into the rest of 2023, we expect physical demand for most commodities to improve as the Chinese reopening gathers pace and typical seasonal factors kick in. That said, we also expect supply of most commodities to improve given that early disruptions have eased. We expect sentiment (as reflected in futures markets) to remain dampened as long as dark clouds remain over the global economy; however, we view positive economic surprises out of China as a non-trivial probability that could serve as significant tailwinds despite the broader macroeconomic picture. In general, however, our base case view is for the industrial commodities to remain largely range-bound over the rest of this year.”
Value and free cash flow yield”:
Hudbay Minerals Inc. (
HBM-T -3.49%
decrease, “buy”) with an $11.50 target, up from $9.25. The average is $9.30.
Analyst: “We like HBM for its current focus on free cash flow generation as well as its exposure to strong current gold prices and the strategic implications of the CMMC acquisition. Our estimates indicate that the company will generate (ex. CMMC) $1.59 per share in FCF this year, implying a FCF yield of 30 per cent. In addition, we note that HBM trades at just 2.2 times our 2023 EBITDA estimate and 0.38 times NAV, vs. the peer group averages of 7.6 times and 0.85 times respectiv