South32, Alumina targets lifted by Goldman Sachs

Goldman Sachs has updated its commodities price forecasts and that’s led to higher price targets for South32 (S32.AU) and Alumina (AWC.AU).

Unused aluminium spools for work in the oil industry pile-up in a shop yard in the Permian Basin oil field.

Here’s Goldman’s take on what the changes mean for South32, which remains a conviction buy:

Diversified (RIO, S32): Upgrades in aluminium and coal price forecasts has had an upward impact on earnings and cash flows for both companies. S32 is most impacted due to the larger exposure to the aluminium and coal price revisions with our EPS forecasts increasing +8.9%/+38.3%/+41.2% in FY17E/18E/19E. We raise our 12-month target price to A$3.00ps (from A$2.90ps) and maintain our positive view on the stock and retain it on CL-Buy. We raise our EPS forecasts for RIO by 22.9%/27.0%/16.7% in FY17E/18E/19E, our 12-month target price remains unchanged at A$70.00ps and we maintain our Neutral rating.

 {googleAdsense}

And here’s why they upgraded the target for Alumina:

Aluminium (AWC): Upgrades in the aluminium price forecasts have strongly impacted AWC’s earnings and cashflow and we raise our EPS by 22.9%/16.3%/12.7% in FY17E/18E/19E. We raise our 12-month target price by +10% to A$2.20ps (from A$2.00ps) and maintain our positive view on the stock and retain our Buy rating.

Both South32 and Alumina have rallied hard over the past year: South32 is up 95% and Alumina has gained 43%.