Broker tips: Millennium and Copthorne Hotels, National Grid, Hunting
With the financial performance of Millennium and Copthorne Hotels remaining mixed, with some regions delivering substantial growth while others struggle due to a combination of market conditions and a lack of investment, analysts at Berenberg saw fit to trim their target price on the firm.
As M&C was set to address the latter issue, something the broker believes could drive growth in the medium-term, but could also lead to minimal free cash flow in the near-term, Berenberg reiterated its 'hold' rating on the hotelier while lowering its target price from 553p to 550p.
Furthermore, the analysts expect M&C's strategy of owning hotels to be maintained, something the broker expects to result in only limited potential for the gap between its market value and asset value to narrow.
M&C's trading in its traditional key cities continued to be varied throughout the first quarter, revenue per available room fell 9.4% in London due to "challenging market conditions" and the impact of refurbishing one of its properties, while in Singapore, a long-running decline stopped, but its RevPAR only increased a "modest" 1.1%.
However, in contrast, RevPAR grew by 7.1% in New York, supported by a strong market and Hilton taking over management of the One UN hotel and revPAR growth in Australasia continued at a double-digit pace.
With M&C set to spend roughly £56m to upgrade its New York properties over the next two years, at the same time it was expected to finally begin construction of new hotel developments in California and Seoul during 2018, Berenberg estimated that capex would rise to £180m in 2018 and £240m in 2019.
Analysts at Credit Suisse reiterated their 'neutral' rating on National Grid, but highlighted their "first major upgrade in asset base growth", leading the broker to up its target price on the electricity and gas utility.
Credit Suisse highlighted a small risk if National Grid chooses to cut its dividend at the start of the next set of UK price controls in April 2021, resulting in a 6% reduction in its 2020 earnings per share estimates on the sale of the final 25% of gas distribution network Cadent.
In its investment overview, the broker pointed to asset growth, greater clarity for returns and improvements to its balance sheet as its reasoning to up its target price to 865p from 850p.
For the near-term, Credit Suisse made minimal changes to its estimates.
"We include a £80m gain on a property sale, but this is partly balanced by a large negative adjustment to UK Gas transmission as a result of OFGEM’s annual true-up process for revenues," CS noted.
Moving forward, the broker upped its earnings before interest and tax forecasts for the medium-term by £191m and left its dividend estimates unchanged.
Analysts at Cannacord Genuity downgraded their recommendation for shares of Hunting from 'buy' to 'hold', citing valuation.
Nonetheless, in the same research note, Hunting received a revised target price of 850p, up from 700p, with the Canadian broker noting that the company’s shares were up by 66% over the past twelve months, having outperformed the sector by over 50%.
"Whilst we are very aware Hunting is traditionally expensive during the upturn, and we are making further upgrades to our forecasts with this note, we believe the stock is now fairly priced and we are downgrading to HOLD with a new price target of 850p," Cannacord said.
"Beyond the cycle," Cannacord also noted a number of positive changes in the company, including the introduction of own-design perforating guns that are simpler, safer, more reliable and cheaper, as well as more consistent explosive charges.
The company had also been reutilising its excess capacity from the previous cycle, having already managed to remain solvent during the past downturn, and still had available capacity - especially in the US - to use as customers looked to ramp-up activity and re-stock.
Finally, the research note also highlighted Hunting's improved disclosure policy, saying that an "unhelpful" divisional split in the group has been removed, allowing for the identification of the fact that the bulk of its non-US business is a tubular manufacturer and distributor, amounting to roughly 75% of non-US revenue and 30% of total group revenue.