The Iluka Resources Limited (ASX: ILU) share price is having a positive session.
In afternoon trade, the ASX 200 mineral sands company's shares are up 2.5% to $11.71.
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Why is this ASX 200 mining share rising?
Investors have been buying this ASX 200 mining share today after the company was the subject of a bullish broker note out of Goldman Sachs.
According to the note, the broker has retained its conviction buy rating on Iluka's shares with an improved price target of $13.70.
Based on the current Iluka share price, this implies a potential upside of 17% for investors over the next 12 months.
Why is the broker bullish?
Goldman is feeling very bullish about zircon prices due to a combination of supply issues and strong demand. It commented:
The zircon market is one of the best structural supply side stories across the entire commodities complex. Zircon entered a deficit in 2021 due to production issues in South Africa from major producers Tronox (#2 player) and Rio Tinto (#3) and a rebound in global ceramics, foundry and chemicals demand.
Due to depleted inventories, ongoing supply challenges (operational issues and grade decline), and a pick-up in Chinese property completions, we now see the zircon market remaining in deficit over the medium term and expect benchmark prices for premium zircon to remain supported at over US$2,000/t.
In light of this, the broker is forecasting revenue and earnings ahead of consensus estimates for the next couple of years. For example, it is forecasting the following from the ASX 200 mining share versus consensus:
- Revenue
- FY 2023 – $1.68 billion vs $1.58 billion
- FY 2024 – $1.68 billion vs $1.60 billion
- EBITDA
- FY 2023 – $0.79 billion vs $0.77 billion
- FY 2024 – $0.84 billion vs $0.75 billion
As a result of the above, Goldman's analysts "think ILU is undervalued based on NTM multiples (on just ~6x NTM EBITDA) vs. key rare earth (c.14x) and mineral sands/pigment (c.6x) industry peers."
