Broker tips: Antofagasta, ITV, Compass

Antofagasta’s shares were under pressure on Thursday after Canaccord Genuity cut its full year earnings forecast for the miner.

Canaccord said the company’s first quarter production for copper, gold and molybdenum were below its estimates.

“First quarter cash costs also disappointed, and we have adjusted both our production and cost profile accordingly,” according to analysts Nick Hatch and Tim Huff.

Antofagasta on 27 April reported a 7.5% fall in copper production to 157,000 tonnes in the first quarter compared to the previous quarter. Gold production rose 1.8% to 56,700 ounces and molybdenum output at Los Pelambres fell to 1,700 tonnes from 2,100 tonnes.

Cash costs before by-product credits in the first quarter were $1.72 per pound, 6% lower than the same period last year, but 4.2% higher than the fourth quarter.

Following the report, Canaccord said it lowered its full year 2016 copper production forecast from 723,200 tonnes to 712,600 tonnes. It also reduced gold production guidance from 256,500 ounces to 247,800 ounces and molybdenum output from 8,500t tonnes to 8,000 tonnes.

The broker raised its gross and net cash cost estimates by 3 cents per pound (c/lb) to 169c/lb and 141c/lb, respectively.

“The overall impact of these changes is that we reduce our full-year 2016 earnings before interest, tax, depreciation and amortisation (EBITDA) from $1,407M to$1,366M, underlying earnings drop from $268M to $237M," Canaccord said.

“Our earnings per share estimate declines from 27.1c to 24.0c and our dividend forecast (basis 35% of underlying earnings) drops from 9.5c to 8.4c, based on a payout ratio of 35% of net attributable earnings.”

Canaccord slashed its target price to 550p from 590p but left its rating on the stock at ‘buy’, saying Antofagasta has a “30% potential upside to the target price”.

The uncertainty surrounding the Brexit referendum will drag on ITV's advertising revenues, but investors would be wrong to try and put a 'structural' spin on what is in fact a 'cyclical' slowdown, Credit Suisse said.

Indeed, in its first quarter update, ahead of the Annual General Meeting on Thursday, management had guided for revenues to come in 6% ahead of consensus, with the broker labelling expected growth at the outfit's studios arm as "very strong".

In the words of analysts Sophie Bell and Joseph Barnet Lamb, the outlook for the second quarter was "muted", with management anticipating flat net advertising revenues against consensus expectations for an increase of between 1% and 2%, driven by the uncertainty surrounding the referendum.

Buyers had lowered their own forecasts for growth from 2.9% to 1.6%, according to Credit Suisse's last survey.

For those reasons, Bell lowered his own forecast for NAR growth from 2.9% to 1.2%.

However, "while buyers' expectations are generally accurate, [we] believe there is a decline in their reliability when forecasting one-off "shocks" to the ad market (i.e. EU referendum, UK general election, FIFA World Cup)," Bell said in a research note sent to clients.

Also in the company's favour, its audience share continued growing over the first 17 weeks.

Trading at 9.6 times enterprise value-to-earnings before interest, taxes, depreciation and amortisation and a price-to-earnings multiple of 12.6 the stock was changing hands at a discount of 15% and 35% versus its EU media ex-internet peer group, the Swiss broker noted.

"We believe concerns around ITV are cyclical and attempts to attach a structural rationale are misplaced. ITV's attractive content business and potential for future cash returns (CSe 16E leverage, 0.5x) creates an attractive long-term investment case, in our view," Bell concluded, keeping his 'outperform' recommendation intact although the target price was lowered from 270p to 255p.

Compass's first half performance in the US was "excellent", offsetting a "sharp deterioration" in its "Rest of the World" segment.

Together with positive foreign exchange effects on the bottom line and lower interest costs, that led analysts at Morgan Stanley to bump up estimates for the company's earnings per share by 2.2% for 2016, another 1.6% in 2017 and by about 1% from 2018 onwards.

The catering services giant's US arm delivered organic sales growth of 8.3% over the past six-month period, marking a sixth consecutive year of high single-digit growth and pushing the region's share of earnings before interest and taxes from 46% to 59% of the group total.

However, the sharp deterioration in Rest of the World saw the rate of growth in organic sales slow from 3.6% in the first quarter to -0.2% in the second quarter.

RoW was only forecasts to contribute 14% to the group's EBIT in 2016 "but it has been a major sales driver in the past,and the speed of the slowdown has been sharp."

Worsening conditions was the sole reason for the drop in margins observed in the first half and sales in the region were expected to still be "under pressure" in 2017, according to Morgan Stanley.

"With a fairly balanced risk-reward ratio, we rate Compass shares Equal-weight, though do still see it as attractive for investors looking for long-term compounders with a relatively defensive profile," the broker said.

Morgan Stanley also assumed a smaller share buyback in 2016.

The broker bumped up its target price from 1,190p to 1,250p and reiterated its 'hold' recommendation on the stock.