Broker tips: Glencore, Whitbread, Next
Analysts at UBS lowered their target price on mining giant Glencore on Friday as a result of an uncertain macro environment in the Democratic Republic of Congo following its recent presidential elections.
UBS, which also reiterated its 'neutral' rating on Glencore, dropped its target price on the stock from 360p to 300p after a recent poll revealed 68% of investors were rattled by the risks associated to the group's DRC business and a Department of Justice investigation into its Brazilian operations.
The DRC presidential elections, which took place on 30 December, which will yield preliminary results by Saturday, were viewed with great scepticism as more than 1m Congolese people were unable to vote in three opposition strongholds as a result of an Ebola outbreak.
Contested elections in both 2006 and 2011 both resulted in violent street protests.
Regarding the ongoing DOJ investigation, prosecutors in Brazil announced that Glencore was under investigation on suspicion of paying more than $15m in bribes to employees of Petrobras back in December.
The investigation has already led to the imprisonment of one former president, as well as some of the country’s most prominent business figures.
UBS expects Glencore's re-rating to take longer than its peers due to "stock-specific concerns lingering".
Barclays has upgraded its stance on Whitbread to ‘overweight’ from ‘equalweight’ and bumped up the price target to 5,200p from 5,000p after the Premier Inn owner completed the sale of its Costa coffee chain to Coca-Cola a day earlier.
The bank said risks now looked skewed to the upside as it hailed Whitbread its preferred hotel pick.
"Clearly there are significant risks surrounding the macro outlook and consequently the group’s earnings profile,"it said, as it cut its underlying forecasts by around 4% on lower revenue per available room to reflect this. "However we believe the risk/reward is now skewed to the upside."
Barclays said the shares already reflect fears around the UK macro outlook while applying zero value to the German roll-out and any possible upside from further re-leveraging and highlighted the company’s capital markets day on 13 February and said it expects this to be a positive catalyst as Whitbread is likely to announce new cost-cutting targets and a £2.5bn tender offer, and update the market on its German plans. It also expects management to outline a medium-term leverage target.
"Including the targeted savings this year and next, the group will have delivered £200m cost cuts over the past four years (with positive surprises on the magnitude of this programme along the way).
"With the appointment of key personnel in areas such as procurement, we believe the group has the potential to go further and deliver more savings over coming years, thereby mitigating the negative impact of a softer RevPAR environment."
Berenberg upped Next to ‘hold’ from ‘sell’ on Friday following the retailer’s well-received trading update a day earlier.
"The year ahead for Next is difficult to predict, with upside risk following an annus horribilis for UK retail, but downside risk from continued Brexit uncertainty and the ongoing structural shift of sales online," it said.
As a result, Berenberg reckons management’s guidance for 1.7% sales growth and a 1% pre-tax profit decline is reasonable.
In the near term, the bank believes that Next’s third-party products business (LABEL) will continue to benefit from the demise of department store peers. In the longer term, it expects that another year of poor store like-for-like growth will provide further support for its view that a store estate restructuring is required, paired with a shift to free home delivery.
Berenberg cut its FY 2019- 20 earnings per share forecasts by 1-2% and retained its 4,100p price target on the stock.
Next shares rallied on Thursday after the company trimmed its full-year profit guidance to £723m from £727m but posted a 1.5% jump in sales over the key Christmas period.