Broker tips: Anglo American, Intertek, Johnson Matthey

UBS reiterated a ‘sell’ rating on Anglo American but lifted its target price to 740p from 540p after the miner reported a first half loss.

The company last week reported a net loss of $813m for the first half of 2016, compared with a $3 bbn loss for the same period last year. The loss included a $1.2bn impairment for some of Anglo’s Australian coal assets.

Anglo in February announced plans to exit coal and pare back its exposure to iron ore. The group intends to reduce its mining businesses to 16 from 45.

“We remain cautious on the share as we expect iron ore and thermal coal prices to fall more than 15% in the second half, with copper, diamond and platinum prices to remain depressed (see Miners' Price Review of 7-Jul); we also see potential for earnings per share (EPS) to disappoint in the second half/2017 due to the stronger Rand,” said UBS.

UBS raised its estimate on 2016 earnings before interest, tax, depreciation and amortisation (EBITDA) by 20% to $4.8bn and its 2017 forecast by 8% to $4.6bn following the better-than-expected first half results, driven by foreign exchange movements and lower costs in Kumba, Copper and De Beers.

The bank, however, still predicts EPS to fall by 40% year-on-year in 2017 on lower prices and higher interest.

Berenberg said it lifted the target price as Anglo's balance sheet risk is lower with pro forma net debt down 20% since December 2015 on strong free cash flow and divestments, which in turn allows the miner to be more selective with further disposals.

“We still expect Anglo to trade at a discount to Rio Tinto/ BHP Billiton due to its higher operational leverage until the outlook for Platinum & Diamonds improves. We prefer Glencore as the leveraged restructuring play among UK diversified miners due to its mix and disposals.”

Societe Generale downgraded Intertek to ‘sell’ from ‘hold’ on valuation grounds.

The bank said the strengths of Intertek’s model and the strategy deployed by the new chief executive are more than offset by negative 12-month total shareholder return after an increase of around 50% in the share price since September 2015. It also pointed to very high trading multiples.

SocGen said the company’s first-half numbers came in close to consensus expectations, with revenue of £1.2bn and adjusted operating profit of £186m.

The French bank lifted its price target on the stock to 3,300p from 3,230p, as it benefits from the slight increase in its profit forecasts.

On Monday, Intertek reported a jump in first-half profit as revenue grew strongly and said the Brexit vote was unlikely to affect its growth opportunities.

Pre-tax profit in the first half rose to £172.5m from £149.8m on revenue of £1.20bn, up from £1.06bn in the same period last year.

The company declared an interim dividend of 19.4p per share, up from 17p in the first half 2015.

Intertek said it was on track to deliver “robust” full-year revenue growth at constant currency and continue to benefit from it recent acquisitions.

Johnson Matthey shares fell on Tuesday as Berenberg cut its rating on the stock to ‘hold’ from ‘buy’.

Berenberg said it is downgrading the speciality chemicals and sustainable technologies company’s rating as it has reached its price target. Johnson Matthey’s shares have risen about 17% since Berenberg’s report ‘Discount to history, but what has changed’ on 30 June, outperforming the Stoxx Europe 600 Chemicals index by about 14%.

“We have consistently argued that Johnson Matthey should not be trading at a discount to its 10-year historical valuation of c17x 12-month forward P/E. This is now where the stock is trading,” Berenberg said.

“We continue to like the higher degree of safety around earnings estimated from regulation to tighter emissions in emissions control technologies (ECT). However, given a subdued environment for US heavy duty (class 8 sales down more than 30% year-to-date) and process technology, it is difficult to see further upgrades to the circa 8% earnings per share (EPS) 2016-18 compound annual growth rate in consensus.”

Berenberg said its EPS forecasts for 2016-18 rise by an average of 2%, reflecting stronger performance in European ECT, more favourable foreign exchange rates and higher platinum group metal prices, partly offset by a larger decline in US heavy duty.

Consensus EPS estimates for 2016/17 have moved up by around 4% since early July, primarily on the back of a weaker pound. Berenberg is broadly line at the EPS level.

Berenberg raised its target price to 3,350p from 3,250p, reflecting higher EPS estimates.