Morgan Stanley maintain our Overweight rating on Sesa Goa (Sesa) and raise our price target to Rs2,247, implying 20% upside. Iron ore prices look set to stay strong for the next three years, which should benefit Sesa, the only iron ore sector stock in India.
Vedanta has purchased a 51% stake in Sesa from Mitsui and therefore has to make an open offer to Sesa's minority shareholders to buy another 20% stake.
Sesa is trading at an F2009e P/E of 7.8x and EV/EBITDA of 3.8x, which we think reflects neither the likely iron ore price strength nor the company's ability to increase production. As a result, the stock is pricing in lower earnings growth and a lower multiple than it deserves as a mid-cycle commodity stock. We emphasise that we expect iron ore prices to remain strong for the next three years.
Morgan Stanley forecast strong iron ore prices for the next three years, which should benefit Sesa as the only iron ore sector stock in India. Accordingly, we have a strong positive view on the stock. Also, by puting forward strong volume growth and attractive valuations as two additional investment positives for the stock. We estimate an 8.2% sales volume CAGR for F2008-10. As mentioned, the stock is trading at what we view as attractive F2009e multiples of 7.8x P/E and 3.8x EV/EBITDA.
Iron ore is one of MS preferred commodities because they believe supplies are finding it difficult to catch up with growing demand from China. An impending tapering off of ore exports from India is compounding the supply shortage. India has been a large swing supplier of iron ore to China in the past three years.
Sesa Goa has touched an intra day high of Rs 2,020.00 and an intra day low of Rs 1,959. Currently the share is quoting at Rs 2,009, up Rs 48.80, or 2.49%
It is trading with volumes of 74,784 shares, compared to its 5-day average of 45,349 shares, an increase of 64.91%. It is trading with volumes of 74,784 shares, compared to its 30-day average of 20,480 shares, an increase of 265.16%.
Yesterday the share closed up 0.75% or Rs 14.55 at Rs 1,960.20
Vedanta has purchased a 51% stake in Sesa from Mitsui and therefore has to make an open offer to Sesa's minority shareholders to buy another 20% stake.
Sesa is trading at an F2009e P/E of 7.8x and EV/EBITDA of 3.8x, which we think reflects neither the likely iron ore price strength nor the company's ability to increase production. As a result, the stock is pricing in lower earnings growth and a lower multiple than it deserves as a mid-cycle commodity stock. We emphasise that we expect iron ore prices to remain strong for the next three years.
Morgan Stanley forecast strong iron ore prices for the next three years, which should benefit Sesa as the only iron ore sector stock in India. Accordingly, we have a strong positive view on the stock. Also, by puting forward strong volume growth and attractive valuations as two additional investment positives for the stock. We estimate an 8.2% sales volume CAGR for F2008-10. As mentioned, the stock is trading at what we view as attractive F2009e multiples of 7.8x P/E and 3.8x EV/EBITDA.
Iron ore is one of MS preferred commodities because they believe supplies are finding it difficult to catch up with growing demand from China. An impending tapering off of ore exports from India is compounding the supply shortage. India has been a large swing supplier of iron ore to China in the past three years.
Sesa Goa has touched an intra day high of Rs 2,020.00 and an intra day low of Rs 1,959. Currently the share is quoting at Rs 2,009, up Rs 48.80, or 2.49%
It is trading with volumes of 74,784 shares, compared to its 5-day average of 45,349 shares, an increase of 64.91%. It is trading with volumes of 74,784 shares, compared to its 30-day average of 20,480 shares, an increase of 265.16%.
Yesterday the share closed up 0.75% or Rs 14.55 at Rs 1,960.20
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