Broker tips: Polymetal, On the Beach, Ferguson
Analysts at RBC Capital Markets upped their price target on FTSE 250-listed precious metals mining firm Polymetal on Tuesday, emphasising that a strong second half appeared to lay on the horizon.
RBC said that while first-half earnings before income, tax, depreciation and amortisation and underlying earnings were down 2% and 6%, respectively, those numbers were but "a small miss".
The Canadian broker said those misses versus consensus estimates were not "too concerning" given that a seasonally stronger second half was already in the pipeline and due to continued strong gold prices.
And with another solid interim dividend on Tuesday, and if spot prices persisted, Polymetal was firmly on track to deliver a full-year yield 4.0%, it added.
On the project front, RBC also highlighted that "everything to deliver growth" also appeared to remain on course.
In addition to upping its target price on Polymetal's hares from 1,100p to 1,200p, RBC reiterated its 'outperform' rating on the group's stock
"Our price target of 1,200p is based on multiples of 1.5x (was 1.4x) P/NAV and 12.0x (was 11.0x) P/adj CF on our blended 2019–20 estimates," said RBC.
RBC stated that such multiples were at "a small discount" to global peer averages, due to the jurisdictional discount stemming from the group's assets in Russia and Kazakhstan, but slightly above their two-year average as a result of changes in Polymetal's portfolio that had increased the quality of production, robustness of its free cash flow and recent record gold prices.
Analysts at Berenberg reiterated their 'buy' rating on shares of package holiday group On the Beach on Tuesday but slashed their target price following the firm's recent profit warning.
On the Beach issued a profit warning on 9 August, due to the weak UK consumer environment on the back of Brexit uncertainties and the continued fall in the pound.
However, while Berenberg said such announcements were "always a surprise", the analysts said they had "plenty of sympathy considering the market backdrop" and highlighted the fact that they still expected On the Beach to grow profits in 2019, demonstrating "the resilience" of its business model.
Given the "myriad of headwinds", the German bank said it was worth noting that it still anticipates OTB's core UK earnings to be "at least flat" in 2019 and pointed out how its peers had been "pushed to the brink and beyond", something it thought "testifies to the virtues" of the group's model.
"While we acknowledge that any further deterioration in the UK political landscape could pose additional downside risk, we believe the shares remain good value, particularly on a multi-year view," said Berenberg, which dropped its target price on the group's shares from 630p to 480p.
Bank of America Merrill Lynch downgraded its stance on shares of plumbing products supplier Ferguson to 'neutral' from 'underperform' on Tuesday, arguing that there is limited upside from recent activist involvement and that short-term trading is likely to remain slow at best.
The bank, which lifted its price target on Ferguson shares to 5,500p from 5,000p, also pointed to an unattractive valuation.
Merrill said the recent rally - largely driven by an activist shareholder building a stake and related market hopes for corporate action - was not justified.
"We struggle to see what an activist could deliver for Ferguson, relative to what management has already done or would consider doing anyway," it said. It noted that management has already been "very" active in the last few years, with the Nordics disposal, cash returns and tax-driven relocations, among other things.
"With close to circa 40% of shareholders in the UK, relisting the company in the US could be challenging to execute without taking the company private first," the bank said.
It added that a sale of the UK business, while a "logical mid-term move", could be difficult in the current environment.
"Other potential changes, such as a large acquisition, would not necessarily create value," Merrill said.
US activist investor Trian Partners revealed back in June that it had built a 6% stake in Ferguson.