Broker tips: Trainline, MJ Gleeson, Glencore

Trainline shares were weaker on Tuesday as JPMorgan Cazenove slashed its price target to 387p from 517p and cut its estimates ahead of the company’s first-half trading update this week.

JPM noted that in general, train usage has been falling by around 90% in Trainline's first quarter and is currently tracking at about 25-35% utilisation, depending on the country.

"Today we factor in a slower recovery than we had previously anticipated and while things may change quickly in terms of train usage (vaccine, employees returning back to their offices) we stay on the sidelines for now and stay neutral," it said.

JPM’s 2020/2021 EBITDA estimates were cut from £27m/£74m to £-28m/£31m.

The bank said it sees room for improvement given a strong focus by the Department of Transport on controlling passenger numbers by implementing a pre-booking/e-ticket only policy, "with Trainline clearly a key beneficiary".

However, passenger numbers remain very volatile given recently increased social distancing measures. For example, it said UK train usage saw a rebound in August to around 40% of the previous year's level but has recently come back down to 30% into September.

Analysts at Canaccord Genuity upped their recommendation on low-cost housebuilder MJ Gleeson from 'hold' to 'buy' on Tuesday, stating that growth had been "interrupted but not prevented".

Canaccord noted that MJ Gleeson's profits were "severely hit" in 2020 as lockdown essentially stopped activity for the group in its "important" final quarter.

However, the Canadian bank highlighted that MJ Gleeson had recently boosted its balance sheet with an equity raise and had significantly invested in site infrastructure as continued to focus on delivering completions from its record order book amid "strong" sales rates.

"It was very positive to see management reaffirm its full-year 2022 completion target of 2,000 homes and we would also expect to see good profit recovery in the strategic land division as housebuilders start to invest in consented land again," said the analysts.

Canaccord also stated that MJ Gleeson served "an attractive segment of the affordable market" and with around 84% of the firm's buyers being first-time buyers, the analysts believe the company was "well placed" to continue to benefit from Help to Buy.

"The balance sheet is in good shape to support the targeted growth and while the priority is clearly investing for growth, we also expect dividends to gradually resume in the current financial year," concluded Canaccord, which also slightly raised its target price on the stock to 700.0p from 690.0p.

Analysts at RBC Capital Markets upped their rating on mining giant Glencore from 'sector perform' to 'outperform' on Tuesday after exploring the group's "deep value" through a management buyout "thought experiment".

RBC said Glencore's recent underperformance had driven "substantial value" in the shares and believes an MBO could "crystallise" much of it.

"Even if this is unobtainable, we think risk/reward is now favourable and upgrade our recommendation," said the analysts.

The Canadian bank thinks Glencore's management and major stakeholder the Qatar Investment Authority could use its 20% equity holding and then raise $14.0bn in new private equity and $18.0bn in debt to bid 237.0p for the remaining 80% of the shares.

RBC said the consortium could then sell roughly $15.0bn in assets, including the oil and agriculture marketing businesses, to reduce debt.

"We envision the remaining business would then be split in two – with a new base metals business 'Electric Mining' part IPO'd in 2022 for an ESG unencumbered $30.0-55.0bn valuation. The consortium could then keep the residual "Coal Co" which at a 14% FCFY valuation would be worth circa $18.0bn on our $75 pre tonne medium-term coal price," said the analysts.

Although RBC acknowledged that increased investor appetite for yield and inflation protection in a low real interest rate environment opened the door for an MBO, it admitted there was "no question" that the financing requirements were large and the risks "substantial"

However, it noted that its study had helped to show the embedded discount to the stock and also to frame the risk/reward at current prices.