Broker tips: AA, Lamprell

Analysts at Berenberg lowered their target price on shares of 'sell' rated AA from 65p to 50p on Thursday, saying 2019 remained a "critical year" for the firm.

Berenberg said 2019 was meant to represent "a positive year of stabilisation" in chief executive Simon Breakwell's turnaround strategy, but that there was still plenty of potential for material disruption from the Financial Conduct Authority's insurance market study.

The German bank acknowledged that AA's first-half results were exactly in line with prior guidance, with overall group underlying earnings rising by 4%.

However, while the interim results showed Berenberg that AA's turnaround strategy was progressing to plan, the analysts continue to believe that risks stemming from the FCA review more than outweigh any upside from improvements in the operating business.

Berenberg said the study was "critical" to the valuation of AA's equity and that a negative regulatory outcome, which would likely focus on the excessive differences between premiums charged to new and existing customers, "should be expected".

"While an interim report was due from the FCA in summer 2019, this is yet to be published. The AA has stated that it believes this is 'imminent'," said Berenberg.

"We remain sellers with a reduced price target of 50p, though we note that the shares are likely to remain extremely volatile until this regulatory overhang is cleared."

Analysts at Canaccord Genuity lowered their price target on oil rig construction business Lamprell from 105p to 90p on Thursday, noting that the UAE-based firm's first-half results were "little to write home about", but sounded a very upbeat note on the outlook for the firm's Saudi Long-Term Agreements and for offshore wind.

The Canadian broker conceded that Lamprell's underlying earnings continued to be negative, order intake was disappointing year-to-date and even stated that attacks on Saudi infrastructure seemed to have done little to "jolt the oil market out of the doldrums".

However, analyst Alex Brooks pointed out how interim revenues of $106m were a 35% improvement on the previous half and said guidance for the full-year implied "a rough doubling of revenue" in the second half.

"The outlook going into 2020 is noticeably improving," Brooks added. "Primarily this is coming from two markets that five years ago were tiny for Lamprell: Saudi LTA and offshore wind."

Brooks's estimates called for Lamprell's total full-year sales to roughly treble between 2018 and 2021, from $234.1m to $700.0m.

Canaccord also made a number of minor changes to its forecasts on Lamprell to account for the integration of IFRS16, the reduction in 2020 EBITDA to around break-even and the slight delay to development of its Saudi yard.

Despite the resulting cut to Lamprell's price target, Canaccord retained its 'buy' rating on the company's shares.