Broker tips: Polymetal, IMImobile
Analysts at Berenberg upped their price target on precious metals group Polymetal to 1,160p from 1,070p on Thursday, telling clients that visits to the company's Albazino and Amursk sites in Russia had confirmed its investment case.
Berenberg said after visiting Polymetal's Albazino mine and Amursk pressure oxidation hub, the driver of a roughly 12% fall in all-in sustaining costs, that it continues to think the firm does a good job of "sticking to the knitting".
"This site tour once again confirmed that – it knows what it is good at, and plays to its strengths, ie operating precious metals deposits in the territories of the former Soviet Union," said Berenberg, which maintained its 'hold' rating on the group.
The German bank adjusted its model to reflect the company's first-half results and production and cost guidance for Albazino provided to it during the site visit and said it still believes there is long-term value in Polymetal, given attractive production growth and cost reductions through operational improvements, new mines and the pressure oxidation hub.
However, Berenberg pointed out that Polymetal's stock had already rallied 19% since the start of July, broadly in line with the sector and ahead of gold itself - up 14% and 9%, respectively.
"While we continue to believe that on a medium-term view the stock offers attractive investment upside (production rises by 11% over 2019E-2023E, and costs drop by 12%), at current levels, the shares offer limited upside to our price target, and we would look for a more compelling entry point to build or add to positions."
Analysts at Canaccord Genuity downgraded their rating on IMImobile from 'buy' to 'hold' on Thursday, stating that the group's elevated development capitalisation understated its price-to-earnings ratio.
In a research report sent to clients, Canaccord pointed out how in its initiation report earlier in 2019, it had argued for a re-rating of the group's shares as it felt IMI's low-teens organic growth, strong CPaaS offering and its blue-chip customer base were "undervalued".
"The shares have begun to re-rate, and on 17x cal. 2020 P/E optically still appear attractive relative to most listed customer engagement enterprise software comps in the 20x - 28x range," said Canaccord.
However, the Canadian broker said its in-depth analysis on R&D capitalisation policies revealed that IMI was the largest beneficiary from capitalising development costs in its coverage.
"In the last three years, the company capitalised 64% of total R&D spend, and due to its long amortisation period (10 yrs), we expect this to inflate key P&L metrics for the next several years," said Canaccord, which also dropped its price target on the group from 380p to 33p.
"Adjusting for CapDev we estimate FY20&21 EPS would be 17% to 25% lower, in turn increasing the shares' cal. 2020 P/E by almost 4 points to 19.5x, the low end of the peer group. In our view, this limits the scope of a re-rating in the next 12 months."
Overall, Canaccord said IMImobile remained "an attractive low-teens organic growth buy and build play on the secular trend of enterprises automating their customer engagement functions".
However, the analysts added that the company's relatively low quality of reported earnings and inherent impact on its valuation made them "move to the sidelines".