Broker tips: Centamin, TUI, RBS

Numis reiterated an ‘add’ rating on Centamin and raised the target price to 110p from 100p after the miner reported a jump in first quarter production

Centamin earlier this month reported a 6.4% increase in gold production at its flagship Sukari gold mine in Egypt to 125,268 ounces in the three months to end of March.

“We believe that the company is well positioned to continue to optimize Sukari whilst developing its West African exploration portfolio supported by solid free cash flow generation and an ungeared balance sheet with $199m (£140m) of cash as of the end of 2015,” Numis said in a note to investors.

Numis expected the group would reach production of 470,000 ounces in 2016 at $900 per ounce, in line with guidance.

The company was due to report its first quarter financials on 11 May and Numis was predicting revenues of $147m, earnings before interest and tax of $29m and earnings per share of $0.03.

Tour operators Thomas Cook and TUI were on the front foot as Berenberg upgraded its recommendations on both stocks.

The bank said it was retaining a cautious view about the tour operators industry, which it reckoned will need to continue to extract efficiencies to stay competitive with the associated one-off restructuring costs.

“However, following the escalation in geo-political risks recently, we feel that the underperformance is overdone as we still expect the European consumer to go on holiday.”

The bank lifted Thomas Cook to ‘hold’ from ‘sell’ and nudged up the price target to 105p from 100p.

It said the shares have underperformed the market by 24% over the past 12 months and 22% year-to-date due to a mix of structural challenges and currency.

“While we believe that the structural challenges remain fierce, we have seen a positive currency swing, which in our view will mitigate further downside risk this year. When this is added to the prospect of some financial restructuring over the next 12 months and the reintroduction of a dividend, we are upgrading our recommendation.”

It upgraded TUI AG to ‘buy’ from ‘hold’ and lifted the price target to 1,300p from 1,275p.

Berenberg pointed out that TUI has underperformed the market by 5.2% and the leisure sector by 13% over the last 12 months as concerns over the geopolitical situation have worsened.

While it continues to believe that the tour operator business model is challenged, it said the steps taken by TUI to offset the geo-political issues should be supportive on the basis that consumers will still go on holiday.

“When we link this to the Hotels and Cruises businesses within TUI, we believe that the shares will see a renaissance through 2016.”

Markets were underestimating the ability of RBS to return capital to shareholders and deliver "significant" earnings per share accretion, UBS said.

Investors had grown tired of restructuring stories, and RBS had missed earnings estimates, delayed dividends and was struggling to turn around its corporate and institutional banking division, UBS explained.

"Still, though near-term trading will likely be subdued and legacy issues remain outstanding, we see a real opportunity here," UBS analyst Jason Napier said in a research report sent to clients.

The lender had a market capitalisation of £27bn and £9bn in excess capital and litigation reserves at the time of writing, Napier pointed out.

Run-off and restructuring should see that rise to £13bn, "without allowing for organic capital generation", he added.

So while further legacy charges - the timing of which was anyone's guess - should be expected, "that surplus capital will remain, underwriting significant dividends and buybacks, delivering significant EPS accretion in a stock which few own, we think."

Furthermore, there was a "pretty attractive" core bank hidden inside, UBS said, pointing out how well over 80.0% of the capital was deployed in non-CIB business.

Napier stuck to his 'buy' recommendation on RBS stock, which was trading on 1.06 times adjusted earnings per share for 2017 (10 times 2017 EPS if the drag from run-off was excluded).

He did however cut his target price from 340p to 310p.

"Key to our positive stance, therefore, are the strong capital returns we see, from 2017E, implying a double-digit return each year, or buybacks which cut the overhang and deliver EPS accretion."