Broker tips: Inmarsat, Plus500, Centrica

Inmarsat's shares are being valued all wrong, Jefferies argued on Monday, setting a price target almost three times higher.

The satellite company's shares, closing last week at just over 360p, are now roughly equal to "no more than the PV of the Ligado lease", referring to the contract with the US telecoms network formerly known as LightSquared.

There has been a lack of visibility over the future of payments from Ligado, which is trying to develop a 5G mobile network. Payments from Ligado, under the deal agreed when it exited bankruptcy in 2016 and submitted a new license application with US regulators, are due to pause in 2019 and resume in 2020 at around $163m a year and grow at a 3% compound rate for 99 years.

Last August the regulatory advisory board director David Redl issued a resounding rejection of the Ligado proposal in its current form, sending shares in both the US company and Inmarsat tumbling.

Jefferies said: "Were Ligado a going concern, you'd be actually getting the [Mobile Satellite Services] business for free. Quite a reversal from the days when it was Ligado that was considered the 'option value' of this equity."

Noting that Ligado bonds have rallied in the recent weeks, the Jefferies analysts said the "the binary outlook for Ligado rewards the investor with a finger on the pulse of power in Washington DC" and suspected one or more investor has been advised that pragmatism will win over principle and that FCC will be recommended to accept the Ligado proposal.

"In this seemingly interminable endgame, we might finally reach a decisive conclusion. A pro-Ligado stance would be very positive for Inmarsat, but there is a bigger game afoot now."

Analysts at Canaccord Genuity took an axe to their target price on shares of Plus500 following the spread betting outfit's latest annual results.

The Canadian broker highlighted the "disturbing" revelations in the same regarding the extent of the unexpected and previously denied profits and losses from client positions which spanned a number of years.

"Breakdown in trust between company and investors is a fundamental issue," it said in a research report sent to clients.

Compounding matters, the analysts expressed their dismay at the "relatively weak" number of new clients that the firm had signed-up over the last three months of 2018, which came in at 19,405, versus a Canaccord forecast for 29,316.

"Increased regulation means in our view Plus500 is a business in reverse," they added, as they nearly halved their target from 1,052p to 546p.

On the back of their now lowered forecasts for Plus500's new clients and average revenues per user, Canaccord cut its earnings per share estimates for 2019 and 2020 by 39% and 32%, respectively.

Canaccord's analysts, which reiterated their 'sell' rating on Plus500, also dropped their EPS forecasts in US dollars to $1.28, $1.17 and $1.15, or 37%, 42% and 36% below the consensus forecast as per Bloomberg.

Another factor to take into account, according to Canaccord, was the "significant" share sales in the recent past by the company's founders and directors.

Analysts at Berenberg downgraded their recommendation on British energy and services firm Centrica to 'hold' on Monday.

2019 had been expected to be the year in which the uncertainties around the group would start to subside. Unfortunately, Berenberg said, it no longer appeared that that would be the case, as operational issues in Centrica's nuclear and upstream gas units meant earnings remained under pressure.

The German investment bank noted a dividend cut did not appear to be the inevitability that Centrica's roughly 9% yield might suggest.

"The group's dividend-dictating debt and cash flow targets are achievable and management seems determined to avoid one," said Berenberg.

Yet with 2019 shaping up to be "another challenging year", Berenberg thought it unlikely that Centrica's valuation would be ready to shake these concerns but added: "We do see value here, provided further mishaps can be avoided."

"However, the margins for error have narrowed, risks have increased and the path to an earnings recovery beyond 2019 is far from straightforward."

In addition to stripping Centrica of its 'buy' rating, Berenberg also lowered its target price on the FTSE 100 resident from 155p to 140p.