Broker tips: EasyJet, ARM Holdings, Hochschild Mining

EasyJet flew lower on Tuesday as Liberum downgraded its stance on the stock to ‘sell’ from ‘hold’ and slashed the price target to 930p from 1,050p following the company’s third-quarter update last week.

It said the airline’s refusal to give any profit guidance just 10 weeks before the end of its financial year said much about the uncertain environment and the sensitivity of earnings to close-in summer bookings.

Liberum said disruption headwinds should fade next year, but yield pressure from excess industry capacity and potentially fragile consumer confidence may not.

“The group’s long-term fundamentals remain attractive, but we fear further short-term pain from earnings downgrades.”

EasyJet report a drop in a drop in revenue per seat and total revenue for the third quarter amid difficult trading that was hit by the terror attack in Brussels and the Egyptair tragedy.

For the quarter ended 30 June, total revenue per seat was down 8.3% at constant currency or 7.7% on reported basis to £54.54, while total revenue fell by 2.6% to £1.196bn as increased seat capacity was offset by the impact on yield of overall market capacity and cancellations as a result of external events.

The load factor – which gauges how full flights are – rose to 92% from 91.7% in the third quarter of 2015.

Berenberg downgraded ARM Holdings to ‘hold’ from ‘buy’ as it lifted the price target to 1,700p from 1,400p on the company’s pending deal with Softbank.

“This is our bull-case scenario price target and thus we move the rating from buy to hold,” the bank said.

Berenberg said it reckons the proposed acquisition of ARM by Softbank announced last week will go through, and that any counterbid was unlikely to be successful because any bid for ARM from customers such as Apple, Samsung, Qualcomm and China, or from cloud computing players such as Facebook, Google and Amazon, would come up against regulatory hurdles.

“If a customer wanted to buy ARM, it would need to gain approval from the regulators in a number of different regions, and its competitors would likely oppose such a deal,” the bank said.

Based on its conversations with investors, Berenberg said they were happy with the price and that a counterbid is not waiting around the corner.

“Prior to the deal announcement, we believe that sentiment was quite negative on ARM on the back of a slowdown in smartphone volume growth – and ARM was yet to see significant demand for its chips from the server and networking market.”

Berenberg said the price offered gives ARM credit for continuous smartphone cycle, server and networking market share gains.

Hochschild Mining surged on Tuesday as Numis upgraded its stance on the stock to ‘buy’ from ‘hold’ and lifted the price target to 290p from 220p.

The brokerage said the company’s second-quarter production results were ahead of its expectations thanks to better grades at the Inmaculada mine.

“These were a good set of results and highlight the ongoing operational turnaround by the company since the commissioning of Inmaculada in 2015,” it said.

Numis upgraded its 2016 production estimates on the back of the update and the upgraded guidance and lifted its FY earnings per share forecasts from $0.07 to $0.11, which is above consensus of $0.09.

Hochschild said last week that production for 2016 would be higher than previously estimated as it noted a big jump in gold and silver output for the first half.

The company is due to publish its interim on 17 August and Numis expects earnings before interest, tax, depreciation and amortisation of $124m, with EPS of $0.04, in line with consensus.