Broker tips: Antofagasta, Coats Group, RWS, Easyjet

Shares in Chilean copper miner Antofagasta were proving resilient on Friday in the face of a downgrade to 'sell' from 'neutral' by Goldman Sachs, which slashed its price target to 700p from 850p as it argued that the stock's valuation is stretched following the recent rally.

GS said that while the fourth quarter is tracking higher than expectations, the recent rally was overdone.

Data released by the Chile copper association earlier this month showed that November production ticked up at both Los Pelambres and Centinela, which should place the company within its FY18 guidance of 705-725Kt given at the 3Q18 results, it said. If December shows another sequential improvement on the month, Antofagasta could track towards the higher end of its guidance range.

However, having risen 7% year-to-date versus flat copper prices, the shares' valuation is looking stretch, with Anto now trading at 6.1x 2019E EV/EBITDA versus peers at 5.0x and Goldman's target multiple of 5x.

"While Anto has historically traded at a circa 10% premium to peers (given it is the only 100% copper-exposed name included in FTSE 100), we believe that the current premium is unwarranted and expect it to come down," it said, hence the downgrade.

Key risks to Goldman's view include higher-than-expected copper prices, a weaker Chilean peso and stronger operational performance than forecast. Another upside risk is a material stimulus in China and/or a material improvement in the growth outlook, which would be a positive for copper and therefore Anto.

Barclays initiated coverage of Coats Group and RWS Holdings on Friday.

It started thread manufacturer Coats at 'equalweight' with a 75p price target, saying the company has a strong position in the thread market and has the potential to drive earnings from cost-cutting a large opex budget and providing global scale to bolt-on acquisitions.

"We initiate at EW as we are cautious on 1) the outlook for top-line growth which limits long-term earnings growth and 2) exceptionals which are still around 10% of EBIT."

The bank also initiated coverage of intellectual property support services provider RWS Holdings at 'overweight' with a 560p price target.

"We think the combination of capital-light businesses (10x capital turnover) with high and defensible margins (circa 2%) in end-markets offering long-term mid-single-digit topline growth makes RWS an attractive investment and justifies its premium valuation," it said.

EasyJet shares were under pressure on Friday, knocked lower by a downgrade from JPMorgan Cazenove and a profit warning from rival Ryanair.

In a note on European low-cost airlines, JPM cut its stance on EasyJet to 'neutral' from 'overweight' and chopped the price target to 1,450p, from 1,800p, as it reiterated its 'overweight' ratings on Ryanair and Wizz Air.

JPM said that based on its historic and expected financial results, it sees EasyJet as a "good" airline, whereas Ryanair and Wizz are "very good".

"EZJ currently trades on a 12-mth forward price-to-earnings of circa 10x, a circa 30% discount to its long-term average of circa 14x.

"If the UK achieves a 'soft Brexit; (which isn’t guaranteed) then we see meaningful medium-term upside for the shares," it said. However, EasyJet's historic valuation discount to Ryanair has largely disappeared and mean reversion is now likely, it added.

JPMorgan slashed its price target for Ryanair to €13.00 from €19.75 and for Wizz to 3,750p from 4,000p.

The bank said it considers all three to be long-term winners in the airline industry, with solid structural growth prospects.

"EZJ and RYA are both trading at a circa 30% discount to their average P/E since 2005; Wizz has less trading history but also looks attractively valued," it said. "Current low valuations reflect multiple investor concerns: a tough winter (too much capacity driving down fares); Europe’s slowing economy; the significant unknowns surrounding Brexit; and specific issues at RYA."

The note coincided with a warning from Ryanair, which said earlier that it now expects full-year profit excluding Lauda of between €1bn and €1.1bn, down from previous guidance of between €1.1bn and €1.2bn, as winter fares fell 7% versus previous guidance of a 2% decline.

The airline also that it could not rule out further cuts to air fares and/or slightly lower full-year guidance, should any unexpected Brexit or security developments impact yields between now and the end of March.