Broker tips: BT Group, Randgold, Forterra

Investors in Vodafone and Swisscom should expect to see dividend cuts, analysts at Macquarie said.

In a nutshell, according to the analysts, outside of BT Group and Orange dividend growth rates in the Europeans telecom sector were "overstated".

There also remained a long-term risk to consensus expectations for free cash flows, they said.

The main drivers of their investment thesis for the sector were: firms' difficulty in growing revenues due to a cocktail of negative factors including price competition, regulators, politicians, consumer behaviour, the shift towards 'bundles', continued strong growth in consumer demand for speed and reliability and sustained high levels of capital expenditure.

In the same note, Macquarie reiterated its 'outperform' recommendations for shares of Orange and Telecom Italia.

The Australian broker also had BT Group (target price: 256p) and CityFibre at 'outperform' (target price: 49p) and Vodafone at 'underperform' (target price: 214p).

Analysts at Credit Suisse stuck by their 'neutral' recommendation on shares of Randgold Resources but expressed surprise at management's decision the day before regarding the size of its dividend payout and what that said about their willingness to return any excess capital to shareholders.

Indeed, its proposed $190m payout meant the outfit was in effect paying out almost all cash in excess of its target $500m cash buffer.

"While reinvestment opportunities are on the horizon, namely Massawa, we take a more bullish stance on dividends in the coming years seeing the potential for yields of over 5% YE2019E, well above the majority of its gold peers," they said.

Credit Suisse also noted Randgold Chief Mark Bristow's comments regarding the potentially "serious" impact that the Democratic Republic of Congo's proposed higher royalties might have on reinvestment in the region in the future.

At the time, the Swiss broker's forecasts were predicated on 2018 gold price of $1,375/oz. and consensus estimates calling for a year-end 2018 yield on the benchmark 10-year US Treasury note of 2.90%.

Analysts at Numis Securities took a look at the current position of the brick industry in the UK on Tuesday, concluding that while sales volumes across the nation were expected to remain "broadly flat", supply and demand dynamics remained attractive, and forecast higher prices too.

"Looking to 2018, despite an expected increase in UK production, we believe that sales volumes by UK manufacturers will be flat (as 2017 was augmented by sales from inventory, which we do not think can repeat). We, therefore, expect demand growth to be met by an increase in imports, and this dynamic has historically led to higher brick prices," the report read.

Indeed, Numis added it would "not be surprised" to see average 2018 brick price inflation in the mid-single digits, indicating share price upside for the likes of Ibstock and Forterra.

Christen Hjorth, along with the co-authors of the industry review, said she believed that it was likely that growth for UK brick producers would be a mirror image of 2017, but noted that there were important mix dynamics to account for.

In the same report, Numis indicated that Ibstock would likely outperform the industry with sales growth of 1%, projecting 5% growth at Forterra, driven by planned increases in available capacity. In parallel, the firms were expected to achieve average price increases of 4% and 4.9% over the year, respectively.

"Driven by our peer group analysis, we believe that an average 2019 P/E ratio of 12.5x for the brick sub-sector is attainable on a one-year view. Based on this and an assumed 5% P/E ratio discount for Forterra (to reflect Ibstock's larger scale/liquidity), we set our target price at 288p/share for Ibstock (from 270p) and 335p/share for Forterra (unchanged). This suggests 15% and 19% upside, respectively, and we, therefore, maintain our Add recommendations for both companies."