Broker tips: Centrica, Blue Prism, Centamin
Centrica faces major headwinds and will not pay a dividend in 2020, Jefferies said as the broker downgraded the struggling energy provider to 'hold' and slashed its price target.
Demand for energy from businesses will be lower than expected and Centrica's bad debts will be higher because of the Covid-19 lockdown, Jefferies said. It reduced its recommendation on the British Gas owner's shares to 'hold' from 'buy' and cut its share price target to 29p from 50p.
Jefferies reduced its estimate for Centrica's earnings per share for the second time since March, cutting another 30% off its forecast for 2020-2022. This brings the broker's total reduction for Centrica earnings to 55% since 11 March with about 70% of the downgrade caused by bad debts and 25% to lower demand.
Centrica's liquidity position is healthy but its balance sheet is precariously positioned, Jefferies analyst Ahmed Farman said. The company might be able to preserve its Baa2 credit rating but this looks risky, he said.
As a result, no dividend per share (DPS) is expected in 2020 and the 2p payout pencilled in by Jefferies for 2021 looks uncertain, Farman said. To build confidence around a dividend policy Centrica should reduce its balance sheet leverage by between £0.5bn and £1bn – or more in a "dowside scenario", he argued.
"Our extensive assessment of Centrica’s historical working capital and bad debt trends suggest that material headwinds are ahead," Farman said "We also expect no DPS payment for FY20. Centrica may hang onto its Baa2 rating for now, but we see limited support for the rating under a more protracted crisis."
Analysts at Canaccord Genuity lowered robotics group Blue Prism to 'sell' from 'hold' on Wednesday, stating that the group's valuation was now "full".
While Canaccord noted that Blue Prism had completed a £100m raise, the analysts said they remained "cautious" on a business model that required such a "large inflow of cash to sustain it".
The Canadian broker expects Blue Prism's cost base to somewhat flatten in its current trading year with the impact of Covid-19 as yet unknown, but its main concern remained that it begins to grow substantially once normal service resumes and that the "don't spare the cost" pursuit of sales growth begins again.
Canaccord also said it believes that the main Covid-19 trading hit will impact the group's second half.
"Our valuation basis has not changed over the last 12 months and probably won't until we have sight of a near-positive adjusted EBIT figure (but not EBITDA, which becomes more and more meaningless with R&D capitalisation and IFRS16 for many companies, not just Blue Prism," said Canaccord.
The analysts also reiterated their 1,050p target price on the group.
Centamin is on track for 2020 production guidance and its dividend looks set to deliver a chunky yield, Berenberg said as it increased its price target for the gold miner.
The first half of 2020 is important for Centamin to rebuild confidence among investors after rejecting a takeover approach in December, Berenberg said.
The company's first-quarter trading was pleasing, with production and costs in line with full-year guidance, the broker said as it increased its price target to 148p from 137p and left the shares' 'buy' rating intact.
Centamin's production is expected to dip in the second quarter but the third quarter should offset this, leaving Centamin placed to achieve guidance of 510-540koz for the year, Jefferies said, though its forecast is at the low end of the range.
The first interim dividend of 6 cents a share should instil confidence in the company's ability to achieve a sector-leading yield of 9%, Jefferies said. The Egypt-focused miner also has a strong balance sheet with $379m (£307m) of cash and liquid assets.
"We maintain our 'buy' rating, but note that, given the strong demand for gold exposure, shares have been a recent strong performer and we therefore would look to add to positions on any meaningful pullback," Lauren Kimman and her fellow analysts wrote in a note to clients.