Broker tips: Centamin, Astrazeneca, Glencore

Numis on Monday downgraded its rating on Centamin to ‘hold’ from ‘buy’ and left its target price unchanged at 170p, following the gold mining company’s recent share price appreciation.

The Egyptian miner last Wednesday reported its full year results. Revenue jumped 35% to $687m and pre-tax profits gained 78%to $267m.

Basic earnings per share rose to 18.61 cents from 4.51 cents the prior year.

Production grew 26% while the average price for gold rose 8% to $1,256 per ounce.

The dividend was lifted to 13.5 cents a share versus 1.97 cents a year ago, bringing the full year payment to 15.5 cents.

Numis said the EPS was slightly below its estimate of 20 cents per share but the full year dividend surged ahead of its forecast of 7 cents per share.

The dividend represented a payout ratio of 70% of 2016 free cash flow (FCF), well above the newly stated 15-30% of FCF policy, Numis said.

Meanwhile, Centamin said it expects production of 540,000 ounces in 2017 at cash costs of $580 per ounce and AISC of $790 per ounce, representing a more cautious outlook than 2016.

“We maintain our 170p target price but lower our recommendation to ‘hold’ from ‘buy’ based on the recent share price appreciation, rather than a fundamental change in thesis.”

Deutsche Bank has reiterated a ‘buy’ rating on Astrazeneca but cut the target price to 5,500p from 6,000p after the drug maker warned that profit and revenue would fall this year.

Last Thursday Astrazeneca issued a profit warning as cheaper generic versions of its cholesterol drug Crestor continue to hurt sales.

The pharmaceuticals group said it hopes that 2017 will be the earnings trough. However, its recovery will depend on the success of new medicines and results from a clinical trial of a combination of two lung cancer drugs.

“Although we see a greater risk that material earnings per share (EPS_ growth is delayed into 2019 and view Astrazeneca as more dependent on pipeline delivery, we continue to see positive risk-reward ahead of a major flow of pipeline catalysts through 2017,” said Deutsche Bank.

“With our forecasts suggesting a 2017-20 EPS compound annual growth rate of 14%, we maintain our ‘buy’ rating with a lowered 5,500p price target.”

AstraZeneca expects core EPS in the current fiscal year to fall by a low to mid-teens percentage in local currency terms from 2016's level of $4.31. It has also forecast a low to mid single-digit percentage decline in revenue.

The company’s guidance was in line with consensus forecasts.

Meanwhile, the group anticipates an increased share of profits coming from asset sales and partnership income.

Deutsche Bank said such “externalisation” and other operating income is expected to contribute to greater than $900m more of profits than expected.

“We have also reduced our pre-externalisation operating margin assumptions leading us to lower our 2018-2022 core EPS forecasts by 5-10%,” the bank said.

“Given the dependence of 2017 earnings on externalisation income, we see a greater risk that a return to material EPS growth is pushed into 2019.”

The bank concluded that risks for the firm include failure to deliver cost savings, lower sales from the growth platforms, pipeline failure and lower commercial potential of pipeline drugs.

Credit Suisse projected slowing copper supply growth over the medium-term following the latest quarterly production updates and guidance from the miners under its coverage, leading its analysts to single out Quantum Minerals, Lundin, Boliden and Glencore as its preferred names.

Supply grew strongly over the first nine months of 2016, but output figures for the fourth quarter and guidance were weaker than expected with large producers Freeport, BHP and Quantum Minerals lowering their outlook for production in 2017 and beyond, the investment bank said.

The overall picture was one of "rapidly decelerating" mine supply, which the Swiss broker forecast would shrink 2% in 2017 following growth of six to seven per cent in 2016.

In 2018 there would be a rebound, but followed by a sharp slowing in the level of incremental supply growth from 2019/2020.

So while demand conditions were the main driver of the overall commodity cycle, the past four years had seen a tight relationship between rates of annual supply growth and commodity price performance, the broker explained.

Hence, "in 2017, we see the potential for copper to outperform bulks as it did in 2014 when supply also slowed sharply."

As regarded equities in the copper space, the copper price embedded in the 'pure plays' was far more bullish than for the diversified miners, the Swiss broker said.

"Across the major pure plays we estimate the stocks are discounting close to 300 cents (roughly 10% above spot [prices])."

"From the pure plays our preferred names are Quantum Minerals, Lundin and Boliden. From the large caps we like Glencore for its high copper and base metal exposure."