Broker tips: Hochschild Mining, Johnson Matthey, IGas Energy, Pets at Home

Analysts at Berenberg lowered their price target on precious metals group Hochschild Mining from 190p to 170p on Thursday, saying there was "no mercy in these markets".

Berenberg said Hochschild's 2020 guidance update from last week had been ill-received, with production guidance of 35 million ounces coming in below its estimates of 38.6moz and, given the 14% drop in the share price over the past few days, clearly below market expectations as well.

The German bank said the main disappointments came in the form of delays to permits at the group's Pallancata project, which impact tonnes processed guidance and speed of new resource discovery, and higher capital expenditures at Inmaculada.

"Taking a step back, we still believe that the company can deliver free cash flow of more than $100m in 2020E ($125m at spot), implying a yield of 10%, and think that the share price move is a severe reaction," said Berenberg.

On a short-term basis, Berenberg still thinks the company has the potential to generate attractive free cashflow, but reckons there is some risk of a grade rollover at Inmaculada, which makes up around 75% of mine free cashflow.

"This, coupled with what we think is still quite an expensive valuation (1.34x NAV), means we maintain our 'hold' rating, but with a revised price target of 170p."

JP Morgan Cazenove has downgraded Johnson Matthey, citing structural growth headwinds ahead for the blue-chip chemicals and technologies group.

Cutting the stock's rating to ‘underweight’ from ‘neutral’, analyst Chetan Udeshi said: "Johnson Matthey has underperformed the sector in each of the past one-year, three-year and five-year timeframes.

"This reflects ongoing structural mid to long-term growth concerns in the key auto catalyst business as well as some disappointments with the recent numbers, especially much weaker free cashflow, rising debt and falling return on invested capital," said JPM, which also cut its price target on the firm from 3,400p to 2,850p.

"We believe the structural growth headwinds will likely become more visible from next year."

Johnson Matthey’s auto catalyst business is responsible for around 65% of group earnings, but growing demand for electric cars - which do not use catalytic converters - is undermining the market.

Udeshi also pointed to the "mounting" cyclical downturn in the truck markets in both the US and EU.

Analysts at Canaccord Genuity cut their target price on exploration and production company IGas Energy in half on Thursday in order to incorporate Westminster's changed stance on fracking.

Canaccord said the change in the government's position on onshore fracking in the UK, specifically impacting the evaluation of the UK shale gas play, led to its reassessment of the carrying value for the company's shale gas assets and, as a result, saw it reduce its NPV10 risked based target price from 150.0p to 75.0p.

"For some time, while the UK shale gas operational programme was active, we have carried a substantial value for that part of IGas' assets in our target price," said Canaccord.

"Following the moratorium on fracking activity, that is no longer appropriate."

However, the Canadian broker said IGas continued to trade at "a substantial discount to core producing asset value", so it maintained its 'buy' rating on the stock.

"With the stock trading at 35p, only 50% of our conventional asset value, it remains in our view an attractive, stable, production-backed, value-play."

Liberum lifted its price target on shares of Pets at Home to 300p from 240p on Thursday following the company’s interim results earlier in the week.

The broker said the results confirmed its "optimism and anti-consensus" 'buy' rating.

"The continued turnaround is one of the most impressive we have seen within the UK retail sector," it said.

"There are plenty more levers to pull, including growing subscriptions, improving Retail/Vets cross-shop and using data to drive customer spend. We think there is a potential incremental revenue pool of circa £2.4bn for PETS to go for through its more than 5m VIP customer base."

Liberum said there is still another valuation step-up to come, supported by momentum in Retail and the Vet Group restructuring, which seems to be going "very much to plan".

"The latter should help deliver stronger, more sustainable free cash flow generation, meaning that special returns could come sooner rather than later," it added.