Are Sandfire Resources shares a buy after their quarterly report?

Indeed, SFR’s share price has tracked the copper price very well, as can be seen in the graphic below. If anything, SFR’s performance has outshone copper’s – demonstrating the excellent leverage it affords investors to a potential copper mega-trend.

Sandfire Resources Broker Consensus vs June Quarter Update

The only rating change came from Ord Minnett who upgraded SFR from HOLD to ACCUMULATE (reversing their 6 June downgrade). Overall, the brokers are now 8 BUY and 5 HOLD (versus 7 BUY and 6 HOLD previously).

Using this method, SFR’s average rating value of 0.62 earns it a consensus BUY rating in my book.

The highest price target of $11 is held by Canaccord Genuity and JP Morgan. For what it’s worth, their $11 price target represents around 31% upside. The lowest price target of $8.25 is held by Morgan Stanley and represents around 2% downside – but this broker is yet to release a research update post-SFR report, so this might change.

Let’s take a quick look at the broker’s commentaries to see if we can glean any further information as to what factors they think could move the dial going forward.

Canaccord Genuity

• Broker viewed Motheo operational performance as strong, but noted weaker performance at MATSA
• Overall, satisfied with June quarter report, and continues to see value in SFR’s share price

Citi

• Broker noted the June quarter “ended on a high” with increased EBITDA margins, a strong performance at Motheo, and the addition of $68m cash
• Broker liked the fact that update “provided some more timing of catalysts with an updated LOM plan for Motheo due August which should deliver more metal and a Black Butte FID 12-24m away”
• “Exploration and organic growth remains the focus. We maintain our Neutral recommendation with our house view that copper consolidates before the next leg higher”

Jarden

• Broker views SFR delivered a strong fourth quarter performance in terms of production, sales, and cash flow
• Notes a significant reduction in the company’s debt position
• Broker is comfortable with it’s OVERWEIGHT rating due to their strong conviction for copper price fundamentals

JP Morgan

• Broker noted that FY24 EBITDA exceeded expectations but was disappointed by FY25 guidance. This caused the broker to downgrade their earnings forecast for FY25
• SFR still represents an attractive valuation based upon the current share price, and also, factoring in the broker’s present positive view on the copper price in the medium term

Macquarie

• Broker noted that SFR’s quarterly copper production was in line with consensus, silver production beat consensus by 14%, but zinc production was 10% lower than consensus
• The broker described FY25 production guidance as “mixed”, noting strong lead/silver production guidance (6-7% above consensus), but weaker copper/zinc production guidance (3-5% below consensus).
• “Importantly, SFR had a material reduction in net debt, reducing US $85m QoQ to US$396m at the end of 4QFY24”, broker notes this was 11% below consensus
• “Even after incorporating increased operating costs, SFR has a strong FY25 EV/Ebitda of 4.8x and FCF yield of 11%.”

UBS

• “C1 costs of US$1.54/lb at MATSA and US$1.56/lb at Motheo highlight the ongoing cost control and improved by-product credits”
• “We await capex guidance at the FY24 results, but with the stock off ~20% from recent highs it's starting to look more attractive once copper improves”
• “As Motheo continues to beat expectations sustaining 5.4Mtpa over the Jun-Q, FY25 guidance of 53kt copper may prove to be conservative again”

This article first appeared on Market Index on Monday 29 July 2024.