Credit Suisse lower rating on Fortescue
Fortescue’s market run has prompted Credit Suisse to warn the miner’s share price may have overshot fair value.
Fortescue’s strong recent run on the market has pushed Credit Suisse to lower its rating on the iron ore miner.
In a note released in the wake of the miner’s recent push to a two-and-a-half-year peak, the investment bank’s analysts warned the share price surge may have overshot fair value.
Analysts headed by Paul McTaggart consequently trimmed their rating from “neutral” to “underperform” but retained a $5 a share price target.
At 11.35am (AEDT), Fortescue shares slid 0.2 per cent to $5.49, although they had weakened as much as 1.2 per cent on the release of the note.
The red figures also came despite iron ore prices striking a six-month high above $US63 a tonne in offshore trade.
Credit Suisse labelled BHP offshoot South32 as the “easier way to play the mid-cap mining sector” amid a view the recent coal price rally was more sustainable than iron ore.
“There are a number of red flags for iron ore including i) recovered China steel inventory, ii) approaching seasonal weakness plus iii) the sharp downturn in steel company profitability,” Mr McTaggart said.
The investment bank currently expects ore prices to trend back toward $US40 a tonne next year.
Despite this, Credit Suisse came away from last week’s site visit at Fortescue with a positive impression.
“Two years ago the focus was to where capacity could be lifted but this time around the message was about productivity improvements and the ability to hold costs to a low level,” Mr McTaggart said.
“This is a business that has moved to maturity at a remarkable rate.”
Fortescue shares have gained 200 per cent in the year to date to be the second best performing stock in the S & P/ASX 200 behind Whitehaven Coal, according to Bloomberg data.