RBS Likes Resources, So Does Citi (But CS Hates Infigen)

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By Rudi Filapek-Vandyck

In a report that was written and published before the Chinese authorities decided to cease the yuan-USD peg over the weekend, commodities analysts at RBS expressed their confidence that prices for commodities would increase in the months ahead.

With prices at some 13% below the June 2008 peak, it is RBS's expectation that commodities prices in general will gain some 8% in the months ahead.

The “news” was taken as a positive by market strategists at the stockbroker, who used it to reconfirm their current Overweight stance on Australian resources companies.

Over at Citi, the team of mining analysts has observed the bigger players in the Australian resources sector have clearly underperformed their smaller peers since April, when equities and commodities started selling-off.

This leads to the Citi team expressing its preference for the bigger players amongst Australian resources companies. There has, say the analysts, never been a better time to start buying Australian resources companies, in particular the bigger and high quality ones.

Recent underperformance is linked to the fact that foreign investors have been withdrawing due to the Resources Super Profits Tax (RSPT) controversy. Citi analysts do not think global investors will be queuing up again to get back in, with shares in BHP Billiton ((BHP)) and Rio Tinto ((RIO)) likely to continue attracting a certain level of interest due to their global presence.

Citi analysts suggest such natural attraction is absent for smaller players in the sector, hence why small is expected to underperform big from here on.

The broker does have a few preferences among the smaller miners in Australia: PanAust ((PNA)) for volume growth, no-RSPT exposure and M&A appeal; Whitehaven Coal ((WHC)) for coal exposure, growth and M&A; and Paladin Energy ((PDN)) for non-Australian uranium exposure (also with corporate appeal).

Over at Credit Suisse, the team of small cap specialists has removed Ramsay Health Care ((RHC)) from its list of preferred exposures. Instead, the analysts highlight ATM specialist Customers ((CUS)) which just so happens to be at the top of the Top-40 ranked list in this month's edition of the Australian Super Stock Report (see the FNArena website).

Credit Suisse's top five picks (because the gap between price targets and share prices suggests the highest potential) are: Pacific Brands ((PBG)), Emeco ((EHL)), The Mac Services Company ((MSL)), Campbell Brothers ((CPB)) and Domino's Pizzas ((DMP)).

Interesting, the team at Credit Suisse is stating it categorically disagrees with management at Infigen Energy ((IFN)) who presented to investors recently while flagging the future holds significant upside potential for the company. CS has downgraded to Underperform to show how much it disagrees with that statement. The downgrade was reported in Friday's edition of the Australian Broker Call Report.

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