Broker tips: Anglo American, Aggreko, Cineworld

JP Morgan analysts changed their tune on shares of UK-listed diversified miners in the wake of the recent 15-20% share price falls in the space.

Although they were still expecting a greater than 10% drop in the iron ore price in 2021 to $75 per tonne if Vale shipped 35-75 more metric tonnes than in 2019 and if Chinese property investment slowed.

On top of that, inventories of steel in the Asian giant were now at record highs, analyst Dominic O'Kane said in a research note sent to clients.

Nevertheless, while it would be "premature" to "aggressively buy the dip" given the fluid and high risk situation around the China COVID-19 coronavirus, valuations across the sector were now supportive, he added.

Furthermore, "decisive" central bank actions were laying "positive foundations" for commodity prices in the back half of 2020.

As a result of all of the above, and following a period of restriction, the analyst reinstated his 'overweight' recommendation for Anglo American with a target price of £27.50.

Prior to the restriction, O'Kane had a target of £25.5.

Trading at a spot three times EV/EBITDA, the analyst said Anglo shares were "cheap" versus its peers.

The analyst also upgraded his recommendation for BHP Billiton to 'neutral' (target price: £18.0) after it de-rated to five times' EV/EBITDA.

For Glencore meanwhile, the analyst said: "Our Glencore UW (£1.90/sh PT) is moving into focus as a depressed $34bn mkt cap leaves Industrial valued at just $17bn vs our $30bn Industrial NPV – a base metal rally would unlock substantial operational & financial leverage."

Aggreko's annual results showed the company making progress but the coronavirus outbreak poses a short-term risk, Barclays said as the bank trimmed its share price target.

The temporary power company's results featured improved profitability and strong cash flow and showed it recovering after a period of poor trading, Barclays' analysts said. Aggreko has also made progress on its hybrid product to move away from diesel to solar and battery power.

"There is a sense the company is on top of the factors within its control, a statement that could not be made for much of the last few years," Barclays' Paul Checketts and his colleagues said.

Aggreko is also attractive based on the share price and a sum of the parts valuation. But Barclays reduced its share price target by 5% to 780p, reduced its earnings estimate for 2020 by 10% and held its rating at 'equal weight'.

"We retain our EW rating … due to the potential impact of coronavirus in the near term and in the long term by the linked challenges of still having c40% of the fleet in the problematic utility segment and c80% of the fleet being diesel," Barclays said. "Aggreko is at risk [from coronavirus] due to its global footprint, the cyclical nature of parts of its demand and its events business."

Aggreko said at its results that it was sticking to its profit guidance if the Tokyo Olympics, for which it has a $200m contract, are not cancelled because of the coronavirus outbreak.

The Barclays analysts said the potential impact of cancellation was about 14% of group profit – less than headline numbers suggest – because much of the work has been done and the games could be delayed rather than cancelled.

Aggreko's annual results showed the company making progress but the coronavirus outbreak poses a short-term risk, Barclays said as the bank trimmed its share price target.

Cineworld shares tumbled on Thursday as Peel Hunt downgraded its rating on the stock to ‘hold’ from ‘buy’ and slashed the price target to 140p from 300p, highlighting risks form the coronavirus outbreak.

The broker pointed to the postponement of the latest James Bond film and people’s concerns about going to the cinema amid the outbreak of Covid-19.

The release of the new Bond, No Time to Die, has been put back seven months to November amid worries about the virus. The world premiere had been due to take place at the Royal Albert Hall in London at the end of March.

"It seems likely there will be further changes in the release schedule which, coupled with consumer concerns about sharing a cinema, will be negative for forecasts," said Peel. "Films are expensive to produce and promote and, with many Asian cinemas closed, and the prospect of, at best, reduced audiences elsewhere, other producers of major films may choose to delay release."