Broker tips: Hunting, BP, HSBC
Analysts at RBC Capital Markets reiterated their 'outperform' recommendation and 650.0p target price for shares of Hunting despite the headwinds that it was facing from trends in capital expenditure in the exploration and production space.
"We continue to see Hunting as competitively positioned vs peers," they said.
They further highlighted the company's attractions as a 'one stop' shop given its product portfolio and its strong balance sheet, with the latter possibly proving advantageous "should inorganic opportunities arise at depressed valuations due to negative industry news flow".
Earlier in the session, the oilfield drilling equipment outfit had provided an update that revealed a slowdown in North American drilling activity thus far in the half, that RBC said would weigh on profit margins in Hunting's Titan unit for the full-year.
The analysts were now also left forecasting Hunting's full-year earnings before interest, taxes, depreciation and amortisaton to come in approximately 5.0% below their previous estimate of $148.0m, mainly due to lower completion activity in the States.
Berenberg sounded a positive note on shares of BP on Tuesday following the oil major's third quarter trading statement.
In their judgement, financial markets had been loooking for a higher quarterly dividend instead of the playout that was finally announced, which might have disappointed some shareholders.
However, they believed that an announcement on further shareholder returns might now come alongside its full-year results, highlighting that BP's new chief executive officer would be in place by then.
Furthermore, they described the company's $6.4bn quarterly cash flow - pre-Gulf of Mexico payments and before working capital requirements- as "strong".
"Overall, we view this as a positive set of results, with strong underlying cash flow generation and a solid operational beat relative to reduced expectations for the quarter," the German broker said.
With the shares changing hands on seven times' their estimate for the outfit's enterprise value-to-debt-adjusted cashflow, they reiterated their recommendation to 'buy' and 600.0p target price.
For their part, analysts at RBC said the firm's decision to eliminate the scrip dividend option, instead of giving into calls for higher returns, was a "prudent step" given where the company's balance sheet was at, with gearing of roughly 35.6% "well above" the usual range.
RBC was at 'outperform' on the shares with a 550.0p target price.
"We remain constructive on BP for its medium-term growth profile and improving cash flow framework," RBC said.
"This growing profile should, over time, lead to improving returns. In the near term, we expect the focus to be on de-levering the balance sheet."
ShoreCap stayed at a 'hold' for shares of HSBC following the lender´s third quarter results.
The analysts labelled the results, which threw up lower than expected revenues and bigger than anticipated impairments as "disappointing".
On the back of HSBC's results, they cut their estimates for its earnings per share in 2019, 2020 and 2021 by 8.0%, 9.0% and 10.0%, respectively.
"While lower interest rates, ongoing trade wars and unrest in Hong Kong are largely to blame for the more challenging revenue outlook, HSBC’s main problem remains the structural underperformance of its US, Continental European and UK Non Ring-Fenced Banking (notably Global Banking & Markets) operations," they said.
In turn, they marked down their estimate for the shares's fair value from 665.0p to 580.0p, telling clients that they should switch into shares of rivals Barclays, Lloyds and StanChart instead, all of which were buy rated.
Nontheless, given management´s moves to reduce its exposure to globally systemically important banks, they believed that regulators would not ask HSBC to hold more capital permanently.
"We assume that the dividend can be maintained and still expect share buy backs to be used to neutralise the dilutive impact of the scrip over time.
"Finally, we think these decisive moves mean that acting CEO Noel Quinn is now in pole position to step into the role on a permanent basis, replacing predecessor John Flint with whom the group recently parted company due to the pace of change being deemed too slow."