Broker tips: Abrdn, Croda International, Petra Diamonds

Deutsche Bank downgraded Abrdn to 'sell' from 'hold' on Wednesday and cut its price target on the stock from 175.0p to 135.0p, arguing that accelerating stake sales won't offset wider headwinds.

The German bank said it was taking a more cautious stance on several fronts and had been "cautious" on Abrdn's earnings for a while, as evidenced by its sell catalyst call in June.

"Since then, we've reflected further on the numbers and see further downside risk to the shares form both an earnings and capital perspective. On the latter, we now push through a 25% cut to the DPS beginning with the 2022 final," said Deutsche Bank.

"Additionally, we also value the excess capital locked within the Indian stakes at a larger 5% discount to reflect concerns around the uses of sale proceeds."

Jefferies upgraded Croda International on Wednesday to 'buy' from its previous 'hold' rating and hiked its price target on the stock from 7,000.0p to 8,200.0p.

"With the Avanti number for FY23 now based, attention can turn to the long-term growth outlook on the Life Sciences business," the bank said.

"We expect the company's LS update in October to set out the pipeline opportunities beyond Covid vaccines and demonstrate a path for transformational growth in the division. Additional catalysts come from capital deployment from one of the leading management teams in the sector."

Jefferies noted that Croda has the best balance sheet in the industry and said management is an effective allocator of capital, divesting Materials businesses at the top of the cycle and redeploying into high-growth niches at relatively favourable valuation multiples.

"We would expect the company to redeploy PTIC (Performance Technologies and Industrial Chemicals) proceeds into either of the remaining businesses," it said, adding that this can drive a 13% upgrade to estimates.

Analysts at Berenberg raised their target price on diamond ming outfit Petra Diamonds from 107.0p to 130.0p on Wednesday, updating its model for the group following its full-year results.

Berenberg said Petra Diamonds' full-year results were in line with its expectations, with revenues of $585.0m, adjusted underlying earnings of $265.0m, and lower than expected unit costs at both its Finsch and Cullinan mines.

Costs at its Williamson and Koffiefontein mines, on the other hand, were above estimates, with the latter mine's operations continuing to track below internal expectations as it approaches the end of the mine plan in 2025.

Earnings per share of $0.36 per share also beat the analysts' estimates, while cash from operations of $283.0m was slightly below estimates due to a smaller release of working capital.

"We update our model for the results, including the new dividend policy and tender offer. The Tender 1 result increases our earnings estimates, while rolling our NAV calculation for FY23 improves our valuation due to lower net debt," said the analysts, who also retained their 'hold' rating on the stock.

"We remain cautious on Petra, as cash interest on the bond kicks in from FY24, which, coupled with rising capex, looks to increase net debt again. We expect a weaker Q1 operationally due to lower-than-expected grades at Cullinan and Finsch. In the near term, however, the stock may benefit from better sentiment. The stock trades on 0.77x NAV and 3.0x EBITDA."