Broker snap: Nomura upgrades Polymetal by two notches to 'buy'

Shares of precious metals producer Polymetal International were given a lift on Monday morning by Nomura, which upgraded its rating on the stock from 'reduce' to 'buy'.

The broker says that Polymetal, which listed in London in November 2011, has "slipped under the radar of institutions" during a period of negative sentiment towards precious metal miners, especially due to its complex operations and Russian exposure.

"This has left Polymetal an underperformer and its valuation is undemanding," Nomura said. The stock trades at 6.2 times 2013 earnings (consensus forecasts) compared with global large-cap peers which trade on a multiple of 11.7.

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"Polymetal has embarked on a large expansion programme over the past five years. The company is now ready to reap the benefits of this expansion as peak capex spending passes," the broker said in a research report.

"We expect Polymetal to generate increasingly attractive free cash flow yields of upwards of 20%, and we expect that management, in tune with changing desires of investors, to return a substantial amount of this cash to shareholders."

Nomura says that now that Polymetal has passed the FTSE re-weighting, current levels provide a good entry point.

The target price for the shares has been cut from 1,400p to 1,340p to reflect a lower expected silver price. However the new target still suggests around 45% upside to the current share price.

By 09:38, shares were trading 1.37% higher at 926p.

BC