Broker tips: Ferrexpo, Diploma

Credit Suisse boosted its target price for shares of iron ore miner Ferrexpo by well over a third on the back of the recovery in prices seen over the past year and after the pellet premium surprised to the upside.

More specifically, they lifted their target from 247.64p to 340p.

As a direct consequence of the above, they went on to explain, its balance sheet leveraged had rapidly declined and their refinancing concerns were a thing of the past.

However, they expected 2018 to be the high water mark for the outfit's margins and given that its valuation was not at an attractive enough discount relative to that of its major peers, they opted to stick by a 'neutral' recommendation for the shares.

Commenting on that surprise rise in the pellet premium, the Swiss broker said it was due to supply constraints in pellets and heightened demand for higher grade pellets on the back of a stronger steel market.

Vale's recently announced 2018 contract premiums of about $60 a tonne should allow Ferrexpo to obtain a similar premium through the year, Credit Suisse said.

But forecasts for new supplies to come on-line meant the premium was seen falling from $55 a tonne in 2018 to $45 a tonne in 2019 and then $35 a tonne by 2020.

Analysts at Numis downgraded their recommendation for stock of Diploma from 'buy' to 'add' despite raising their target price on the shares in the wake of the company's "encouraging" trading update for the first quarter.

In particular, they highlighted the 8% jump seen in the technical products and services supplier's organic sales during the period and the "moderate" improvement seen in its operating margins.

They also lowered their effective tax rate assumptions for the company to account for recent changes to US tax laws.

Thus, the outfit's ETR was now seen coming down from about 26.5% in 2017 to roughly 24% in 2018 and 23.5% for both 2019 and 2020.

Following on from the above, they estimated the company's earnings per share would be approximately 1.5% higher over the next three years, rising to 55.2p, 59.3p and 62.7p, respectively.

Nonetheless, with less than 20% of upside now left to their new target price of 1,350p (up from 1,300p previously), they downgraded the shares.