Broker tips: Keywords Studios, Petropavlovsk, Capita
Analysts at Berenberg raised their target price on video games industry outsourcer Keywords Studios from 1,400p to 1,700p and upped its rating on the firm from 'hold' to 'buy' on Tuesday, saying it was time to back a "multi-year winner".
Berenberg noted that 2019 was "a year of investment" for Keywords and while the spending put pressure on margins and earnings delivery in the near term, the analysts said they had always argued that Keywords was a multi-year winner.
The German bank highlighted that Keywords had delivered 15% organic growth in 2019, something it called "a very strong result" in what was a relatively weak year in terms of development for the games industry.
"Looking to 2020, the launch of the next-generation consoles and further development of streaming platforms, which we anticipate will drive an industry-wide acceleration in content generation and increased development spend, provide a strong demand backdrop," said Berenberg.
"Coupled with its significant increase in capacity during 2019, this means Keywords is well placed to deliver material growth in 2020 and beyond."
As a result, Berenberg said it was now time for a re-evaluation. With a very strong growth outlook, margin expectations sufficiently rebased and M&A likely to increase in the coming months, Berenberg also said it felt Keywords' outlook was "robust".
Analysts at Canaccord Genuity bumped up their target price on shares of gold miner Petropavlovsk from 19p to 22p as the miner's leverage and associated risk decline.
A raft of positive factors, including an "aggressive" target for own mine gold output in 2020, a successful ramp-up of its pressure oxidation project, and a higher price for the 'yellow metal' in international markets had all contrived to push its share price above that of its 2019 convertible debt issue of about 10.4p.
All of the above meant that Petropavlovsk would be able to reduce debt through conversion, further reducing the broker's concerns on that front.
That was a far cry from the situation that the miner was in five years beforehand, with the POX project halted due to low gold prices and a heavy debt load that needed refinancing, analyst Nick Hatch said in a research report sent to clients.
The POX hub added optionality to the company's business case, allowing it to purchase and refine third-party concentrate, although that would add to the volatility in output from one quarter to the next and entailed its own set of risks Hatch explained.
"We expect to see increasing volumes of bonds converted if the share price remains around current levels. Given the historical challenges that POG had with debt, this should help to reduce concerns further. In our view, POG is de-risking rapidly," the broker said.
Outsourcer Capita got a boost on Tuesday as Deutsche Bank upped its stance on the shares to ‘hold’ from ‘sell’, noting that the stock is now down 20% from its post-election highs.
"We harbour concerns that the costs of making Capita a ‘digitally enabled’ business process outsourcing provider will be excessive, but these are now more reasonably priced in, in our view," DB said.
The bank trimmed its price target on Capita from 155p.
"We have largely left our sum-of-the-parts intact from our downgrade note on Dec 18th, however, we have decided to marginally reduce the multiple we place on potential disposals to only 10x 20e EBITA down from 12x. This knocks our target price down to 150p," it said.