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On Friday, UBS analysts adjusted their stance on Aurubis AG (ETR:NAFG) (NDA:GR) (OTC: AIAGF), a leading copper producer, downgrading the stock from Neutral to Sell and reducing the price target to €60.00 from €65.00. The revision in rating and price target reflects concerns over the copper market and the company’s financial outlook.
Daniel Major of UBS expressed a positive view on the broader copper market, anticipating higher London Metal Exchange (LME) prices and organic growth to offer earnings support for the next two to three years. However, he cautioned that persistent tightness in refined copper and copper concentrate markets is likely to keep treatment charges low for an extended period. This scenario is expected to exert downward pressure on copper scrap refining margins, potentially capping earnings growth and posing a risk to the consensus view.
The analyst highlighted that while the market conditions for copper appear favorable, the specific challenges faced by Aurubis, including lower treatment charges, are likely to limit the company’s earnings potential. The anticipated lower for longer treatment charges (TCRCs) and squeezed refining margins for copper scrap are central to UBS’s concerns.
Furthermore, Major noted that Aurubis is expected to continue incurring high capital expenditures over the next two to three years. This sustained level of investment is projected to result in negative free cash flow (FCF) and an increase in net debt for the company. Given these financial pressures, UBS believes that the risk/reward profile for Aurubis shares is skewed to the downside.
The downgrade and price target adjustment by UBS suggest a cautious outlook for Aurubis stock, factoring in industry-specific challenges and the company’s anticipated financial performance. Investors may consider these insights in their assessment of Aurubis as it navigates the evolving copper market landscape.
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