re-rating in the EV/EBITDA multiple, in line with that period.
We have made corrections to the price target and bull, base and bear case values
for AGLJ.J, BILJ.J and GLNJ.J in Exhibit 50, the Risk-Reward sections of this article
and to the corresponding text. This article was originally published on September
24, 2018 at 08:15 PM GMT, and is being republished on September 25, 2018. Pricing
data and disclosures reflect original publication date. To receive an electronic copy
of the original version of this publication, please send an e-mail to
Equity_Research_Publishing@morganstanley with the publication title and
date.Recent Reports
TitleDate
European Metals & Mining Tracker: Still shining20-Sept-18
Diamond Trade Data: August – polished export value per carat steady13-Sept-18
European Metals & Mining Tracker: Higher lows13-Sept-18
Norsk Hydro ASA: Slowly, slowly but end is in sight06-Sept-18
European Metals & Mining Tracker: Handbrake off06-Sept-18
KAZ MINERALS PLC: Value emerging, upgrade to Equal-weight06-Sept-18
Antofagasta: A clean slate05-Sept-18
metal&ROCK: Platinum – beyond the diesel fumes02-Sept-18
European Metals & Mining Tracker: Growth, value or value trap 30-Aug-18
Steel Production Data: July output accelerates again28-Aug-18
metal&ROCK: Iron ore – not making waves27-Aug-18
European Metals & Mining Tracker: Risk assessment23-Aug-18
Diamond Trade Data: July – polished export value per carat at highest ever21-Aug-18
European Metals & Mining Tracker: Unforgiving16-Aug-18
Kaz Minerals: Baimskaya widens risk reward skew14-Aug-18
EEMEA - Metals & Mining: Potential tax measures: what is the market discounting so far13-Aug-18
European Metals & Mining Tracker: Skewed views09-Aug-18
European Metals & Mining Tracker: Iron ore product premiums in three ways02-Aug-18
European Metals & Mining Tracker: A golden gap26-July-18
Diamonds: Lab vs Pipe - likelihood of worst case scenario greatly reduced24-July-18
European Metals & Mining Tracker: It's EPS Not Multiples19-July-18
Carbon Steel: Safeguard measures lend a helping hand18-July-18
Global Metals & Mining: Global Preference List - 3Q1817-July-18
Lundin Mining Corp.: A fresh try for Nevsun with more cash this time17-July-18
Metals & Mining: Re-rating Elusive17-July-18
European Metals & Mining Tracker: Peaking at the trough12-July-18
European Metals & Mining Tracker: Dazzling demand05-July-18
Glencore PLC: Going Downstream: Offense or Defense 02-July-18
Global Lithium: SQM to Define Global Li Prices: What Is the Sweet Spot02-July-18
thyssenkrupp AG: Steel JV definitive agreement signed02-July-18
European Metals & Mining Tracker: Two pronged28-June-18
Diamonds: Plenty of positives from our Antwerp trip28-June-18
metal&ROCK: The Price Deck – 3Q 201828-June-18Transformed industry now at attractive valuation
Upgrading industry views to Attractive
We upgrade our industry views for European Metals & Mining and Carbon Steel from
In-Line to Attractive and raise Glencore, Norsk Hydro and SSAB from Equal-weight to
Overweight, while we continue to rate Anglo American and ArcelorMittal Overweight in
DM. Our price target and earnings changes (see Exhibit 40 to Exhibit 47) are driven
mostly by our commodity team's new price deck.
The sector has underperformed materially both on a relative and absolute basis so far
in 2018 (see Exhibit 2), triggered by increasing concerns around demand (on both global
trade friction and China tightening) and in our view an elevated valuation at the start of
the year. This has left us with 18% weighted average upside potential to our price targets
(including ~30% upside to our Overweight rated stocks), compared to a range of -5% to
+11% in the last 18 months (see Exhibit 3).
That scale of underperformance has sufficiently changed the risk reward profile.
Moreover, the sector's valuation now screens well versus the broader market as
demonstrated by Morgan Stanley's European Strategy team here and in Exhibit 4 to
Exhibit 7.
Exhibit 2:The sector has underperformed materially since the start of
the year...
31%
-5%-5%-6%-10%-10%
15%
-8%-7%
-22%
-13%-12%
Since 1 Jan 2015YtDQtDSince 1 Jan 2015YtDQtD
AbsoluteRelative to MSCI World
EuroStoxx 600 Basic ResourcesMSCI World Metals & Mining
Source: Thomson Reuters, Morgan Stanley Research. Calculation based on Total Net Returns, assumingdividends get reinvested post tax. 'Simple' returns would have yielded a relative YtD performance of -14% for
EuroStoxx 600 Basic Resources and -17% for MSCI World Metals & Mining.
Exhibit 3:…driving a much improved risk reward ratio on our base
case with 18% upside potential including 30% for Overweight rated
stocks
-58
-3
1110Jan-17Mar-17Jun-17Sep-17Dec-17Mar-18Jun-18Sep-18
Weighted average upside to our base case price targets in %
Source: Morgan Stanley Research
4。