Broker tips: Hiscox, Antofagasta, Petropavlovsk, SSE
Berenberg cut its price target on shares of insurance provider Hiscox from 1,581p to 1,487p on Tuesday as it said the valuation is demanding given the mixed short-term picture, despite attractive longer-term prospects.
The German bank said growth in the key US retail division is likely to slow due to exits of underperforming lines and potential disruption from a significant IT upgrade. It also expects a short-term loss ratio deterioration due to a higher attritional loss ratio in certain lines and a normalisation of reserve releases.
"While pricing is increasing, we believe it has lower proportional exposure than peers to the business lines with the most attractive pricing dynamics," Berenberg said.
It added that trading on a 2.2x 2020E price to book ratio, Hiscox’s valuation is demanding.
The analysts said that despite the recent pullback in the shares and the fact that Hiscox avoided a third major loss event in three years, the risks were weighted to the downside for Hiscox.
Berenberg maintained its 'hold' rating on the shares.
Analysts at Deutsche Bank reiterated their 'sell' stance and 820p target price on shares of Antofagasta after attending a roundtable with its chief executive officer.
They labelled Antofagasta a "quality copper stock" and expressed a liking for management's phased and disciplined approach to project development.
However, with copper prices set to remain beneath mid-cycle levels for the foreseeable future, they believed the shares' current valuation was "difficult to justify" on both a relative and absolute basis.
On their estimates, the shares were sporting a 2020 enterprise value-to-earnings before interest, taxes, depreciation and amortisation multiple of eight times and a price-to-earnings multiple of 25.
Canaccord Genuity reiterated its 'speculative buy' recommendation for shares of Petropavlovsk ahead of the miner's Capital Markets Day, telling clients that the company's latest interims showed that its operational and financial recovery was continuing.
The key to Petropvalovsk's first-half results had been the smooth ramp-up of production at its Pressure Oxidation Hub (POX), so that over 40.0% of the company's earnings before interest, taxes, depreciation and amortisation was now generated from the refractory ores at the Malomir mine.
It had also allowed the firm to lower its guidance for full-year total cash costs from $850-950/oz. to $750-850/oz.
And with a new flotation line being built at Pioneer, the miner would be able to double its refractory ore processing capacity from 3.6 metric tonnes per year to 7.2Mtpa and process increased amounts of third-party concentrates.
The Canadian broker also highlighted the return last June to Petropavlovsk of Pavel Maslovskiy as its chief executive officer, Alexey Dubynin as its finance director and the appointment of three new non-executive directors in the final three months of 2018.
Canaccord analyst Nick Hatch kept his target price for the shares at 12p.
Morgan Stanley upgraded its view on SSE shares, arguing that the company's divestment of its Retail and Exploration and Production arms would simplify the business, raising the profile of its renewables operations and in turn resulting in a higher valuation multiple.
The investment bank's latest analysis shed a roughly £10bn valuation for SSE Renewables and for the company's thermal assets.
In itself, that meant the former were undervalued and meant no new growth was being factored-in.
"We believe an exit [of the B2C Retail unit] would remove an overhang and catalyse a re-rating. If SSE traded on a National Grid DY (6%) then we could justify ~20% share price upside (>1,350p)," they said.
And Morgan Stanley forecast that a reduction in SSE's trading losses, together with renewables coming on-line and higher power prices would drive greater than 20.0% growth in the company's earnings per share over 2021 and 2022.
The analysts also highlighted how, based on history, the shares were then changing hands at an approximately 20% discount to the sector and of 7% versus the wider market, as well as its "impressive" 7% dividend yield.
Furthermore, while there was some uncertainty as a result of Brexit and the possibility of an early election, Morgan Stanley pointed out how polling was more split than in the past.
Morgan Stanley also bumped up its target price for SSE's shares, from 1,255p to 1,290p.