Broker tips: Antofagasta, Ascential
Analysts at RBC Capital Markets downgraded shares in Antofagasta to 'underperform' and lowered their target price, saying the South American copper miner faced more downside than its peers from the Covid-19 pandemic impact.
Antofagasta on Monday said it had suspended its Los Pelambres Expansion project in Chile for about 120 days due to the crisis. Its other operations in the country have also been shuttered.
"Challenges to mining in Chile appear to be increasing with the nationwide lockdown in place and this reinforces our fears around lack of geographic diversification in the asset base," the bank said in a note as it cut the target price to 600p from 760p.
"Only three weeks ago with management indications of capex cuts we saw Antofagasta, with its still strong balance sheet as a likely stalwart through the downturn. However, even so, at a $1.75/lb copper Covid-19 downside price, the margin compression in Antofagasta remains well ahead of peers."
"As Antofagasta has only $563m of net debt, and liquidity at $3bn the challenge remains one of profitability rather than any concerns around solvency," RBC added, noting that the sector could face a sustained period of low prices as inventories built up.
Analysts at Berenberg lowered their target price on exhibition and festivals media specialist Ascential from 300.0p to 240.0p on Monday, stating that with events being "off the table" for the immediate future, so too were earnings.
Berenberg said that Ascential's move to cancel its Cannes Lions festival, which had already been rescheduled from June to October, had already had "a significant impact" on its estimates for the group.
However, the German bank also decided to remove the firm's Money 20/20 events in the US and Europe from its numbers, leading it to adjust estimates for other business activities that would be "severely affected" by Covid-19.
Berenberg highlighted that given the high drop-through margins on the lost revenue, it had now cut its group earnings per share estimates for 2020 down "to almost nothing".
"With significant cuts for 2021 as well, we reduce our price target further to 240p," said the analysts, who also noted that their 'hold' rating on the stock was premised on a recovery to "more normalised levels of business" in 2021.
"The stock is clearly cheap on a FY 2021 P/E of 11.5x versus its two-year forward average multiple since its IPO of c17.6x. This represents a c35% discount."
Berenberg also said that while it removed a dividend from its estimates for Ascential in 2020, it assumes dividends will resume in 2021.