From Morgan Stanley today:
Testing the China component: Our positive sector view stems from four elements: 1) a favourable macro outlook with estimated global GDP growth of 3.6-3.7% for 2017/18; 2) low risk of a growth ‘slump’ in China through 2017/18; 3) a likely rotation toward miners on the ASX, and 4) beneficial commodity prices,as discussed in our June report, Why so sluggish? We have a focus on cashflow durability for the equities as this constructive framework for ASX200 Resources can encounter volatility. In this report, we examine charts and data from China in relation to our industry view and relative preferences amongst the ASX miners.
Recapping our top picks: Our list is topped by S32; it has strong FCF(~7.5% yield), low EV/EBITDA (~4x) and net cash to reinvest or return. BHP and RIO are still near the top of the list given their strong margins (+40% EBITDA) and upside potential to price target. MIN is at number three as the lithium leverage comes further into play. WHC is at number five with volume and product mix key. After these names ILU, EVN and IGO have strong financials and assets with bulk ,gold and base metal exposure, respectively.
