On Thursday, Citi increased the price target for Fresnillo Plc. (LSE:LON:FRES) (OTC:FNLPF (OTC:FNLPF)) to GBP8.70 from GBP8.50, while reaffirming a Buy rating on the stock. The adjustment reflects the company's positive developments in several key areas of its investment strategy.
According to Citi, Fresnillo has benefited from an upward momentum in silver and gold prices, which have seen year-to-date increases of 15-25%. Additionally, the company has experienced a significant reduction in cost pressures, attributed to a 17% depreciation in currency and better-than-expected cost performance at its largest silver mine, Juanicipio, during the first quarter of 2024.
Fresnillo's operating performance has demonstrated continued stabilization, which is another factor contributing to Citi's optimistic outlook. Analysts at the firm anticipate that Fresnillo's EBITDA could double in 2024, with the potential for a further 50% growth in 2025 based on current commodity price projections.
Citi finds the valuation of Fresnillo shares particularly attractive, citing a multiple of 4.6 times the projected 2024 EBITDA. This assessment suggests that the stock may offer a compelling opportunity for investors, given the company's recent performance and future prospects in the commodities market.
In other recent news, Fresnillo Plc received an upgrade from RBC Capital, moving from a rating of Sector Perform to Outperform. This shift in stance by RBC Capital also included an increased price target for Fresnillo, rising to GBP7.00 from GBP4.90. The upgrade followed an observation of Fresnillo's shares underperforming, leading to the stock trading at a discount compared to its silver industry peers. Despite acknowledging challenges faced by Fresnillo, such as a declining production profile and a more challenging operating environment in Mexico, RBC Capital forecasts a potential increase of approximately 20% in Fresnillo's share price over the next year.
This prediction is based on the expectation of higher precious metals prices, which are likely to benefit the mining company. The revised price target of 700p, up from 490p, reflects RBC Capital's confidence in Fresnillo's ability to overcome its recent underperformance and capitalize on favorable market conditions for precious metals.
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