Later this year, shareholders in Iluka Resources should receive an allocation of shares in Sierra Rutile Holdings. This comes as Iluka Resources has decided to demerge the entity, which will subsequently be listed on the ASX.

The broker estimates Sierra Rutile Holdings comprises around 24% or $1.90 of its $7.90 base case valuation for Iluka Resources.

The company's capital allocation priorities will now be focused on Australian projects, with a key focus on diversification into rare earths, notes the analyst. The Equal-weight rating and $9.75 target are retained. Industry view: Attractive.

Sector: Materials.

Target price is $9.75.Current Price is $12.54. Difference: ($2.79) - (brackets indicate current price is over target). If ILU meets the Morgan Stanley target it will return approximately -29% (excluding dividends, fees and charges - negative figures indicate an expected loss).

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