Bci Stock Market Recommendations Sector Commodities

2018 Stock Market Recommendations Sector Commodities

Sector View

2018 Outlook

  • Prospects for 2018 are mixed; a tight Lithium market would persist due to favorable demand. In contrast, Iron Ore would be pressured by an increase in supply and construction deceleration in China. This will continue to provide instability to CAP’s operating cash flow, although its pellet-oriented product mix has proved to be a winning strategy, capturing price premiums, which we estimate will persist amid Chinese authorities’ attempts to decontaminate cities. Meanwhile, we are attentive to changes to Fed’s rate in 2018, which could further weaken the Yuan against the Dollar, thus dropping commodity prices in USD.
  • Whereas in 2017 we witnessed margin improvements due to cost efficiency plans, we believe downward pressures on Iron Ore prices will continue to set the tone and negatively influence the progress of CAP’s operational cash flows.
  • On the other hand, developments over the dispute with Corfo, potential control changes, Lithium demand and subsequent production acceleration of electric vehicles will favor SQM’s performance.
  • Finally, we recommend paying close attention to short-term stock premiums, primarily influenced by control issues and assumptions regarding litigation with Corfo. Our baseline scenario contemplates a resolution to the dispute, with the renewal of concessions in Salar de Atacama and an increase in Lithium royalty.

Risks

  • Misalignment with respect to our underlying asset price projections, which incorporate a scenario of production surplus in the long term, gradually approaching towards the marginal cost of the industry.
  • Margin estimates contemplate corporate efforts geared towards greater operational efficiency, however, setbacks/increases in production levels above expectations may bring volatility in Ebitda levels and margins.
  • Investment plans that diverge from our expectations, both in capacity and execution time may alter our vision regarding companies.
  • Control changes in SQM could be favorable, in the extent that a relevant player materializes its entry into the global Lithium business.

Peers

P/E P/B EV/EBITDA
Company Country T.P. 2018E Last Price Upside Div. Yield 2018E Market Cap (MMUS$) YtD Return 2017E 2018E 2017E 2018E 2017E 2018E
CAP Chile 7,515 7,015 7.1% 2.1% 1,664 47.2% 23.7 32.5 0.9 0.9 8.2 9.3
Peers
Vale do Rio Doce Brazil - 29 - - 52,450 24.0% - - 1.1 - - 5.5
Rio Tinto Australia - 69 - 1.0% 144,102 15.5% 15.6 14.4 2.3 - 6.6 6.5
Atlas Iron Australia - 0.02 - - 202 -37,0% - - 0.5 - - 2.6
BHP Australia - 27 - 0.9% 173,110 5,7% - 18.0 1.9 - 6.1 6.4
Fortescue Australial - 5 - 2.0% 20,201 -14.3% 5.8 10.7 1.3 - 3.2 4.7

Peers

P/E P/B EV/EBITDA
Company Country T.P. 2018E Last Price Upside Div. Yield 2018E Market Cap (MMUS$) YtD Return 2017E 2018E 2017E 2018E 2017E 2018E
SQM Chile 42,100 37,167 13.3% 2.6% 14,582 94.7% 37.9 28.9 4.8 4.6 13.8 11.3
Peers
Potash Canada - 24 - 2.1% 15,956 -2.3% 31.2 28.0 1.9 1.9 13.3 12.5
Mosaic US - 21 - 2.9% 7,351 -28.6% 29.1 19.7 0.8 - 12.1 8.3
Agrium Canada - 133 - 3.3% 14,663 -1.7% 22.8% 17.7 2.2 2.3 10.3 9.8
Yara Norway - 357 - 2.8% 12,266 5.0% 33.9 15.5 1.3 1.3 9.8 7.4
Israel Chemicals Israel - 1,536 - 2.3% 5,613 -2.8% - 11.9 2.1 - 23.6 7.5
Albermale US - 137 - 0.9% 15,085 58.6% 35.5 27.0 4.0 4.7 18.9 16.5
Tianqi China - 69 - 0.3% 10,403 112.1% 40.1 30.2 12.3 - - 18.3
Updated 10.10.2017 , Sources: Company Filings, Bloomberg, Bci Equity Research

Recommendations Sector Commodities

Companies under coverage at Sector Commodities: