Broker tips: Imperial Brands, StanChart, Acacia Mining

Imperial Brands, formerly known as Imperial Tobacco, was a high riser on Monday as Goldman Sachs upgraded the stock to ‘buy’ from ‘neutral’ following recent underperformance.

It noted the shares are down 8% over the past month versus its European staples coverage and the broader market.

“Our 'buy' thesis is predicated on the company’s highly cash-generative business model (we forecast over £13bn of free cash flow generation over the next 5 years, equivalent to 39% of its current market cap), attractive average EPS growth (7% pa) and dividend yield (c.5% pa) in CY17-18E,” the bank said.

Goldman said upcoming catalysts include the first half results on 4 May and the Investor Day on 8 June.

The bank said consensus forecasts are not adequately reflecting the mix benefits from the inclusion of the US assets and the mix effect on operating margins due to lower sales in Iraq and Syria.

“In addition, based on average year-to-date and current FX spot rates, we estimate a 1.5% positive contribution to FY17 tobacco operating profits.”

GS added that while no change to management’s long-term guidance is expected at the Investor Day, an update on strategy – particularly on the US and brand optimisation programmes – could boost sentiment.

Goldman kept its 3,950p price target on the stock.

StanChart's first-half fee and trading income probably took a hit from market volatility while the deleveraging of its liquidation portfolio likely weighed on net interest margins, Citi said.

The broker estimated the lender would report a pre-tax loss of -$533m for the first six months of its financial year, with revenues down by 21% but up by 7% versus the previous half.

However, a return to profitability for the full-year was on the cards, Citi estimated, bumping up its estimate for earnings per share at the Asia-focused lender in 2016 to 5.5 cents, from a loss.

Citi's estimates for 2017 and 2018 EPS on the other hand were lowered by 14% and 5%, respectively, "mainly due to a slower recovery in revenues and higher investment-related expenses. This is partially offset by a lower CoR."

Even so, automatically rolling forward its valuation methodology by one year meant the target price rose from 465p to 570p.

Numis on Monday reduced Acacia Mining’s rating to ‘add’ from ‘buy’ following the recent rally in shares.

The broker, however, raised its target price to 400p from 310p as it upgraded its forecasts for gold prices for 2016 and 2017.

“The main driver of this is an increase in our 2016 gold price assumption from US$1,106 per ounce (oz) to US$1245/oz and our 2017 gold price forecast from US$1,200/oz to US$1,250/oz,” said Numis analyst Jonathan Guy.

Acacia Mining last Thursday reported first quarter production of 190,210 oz at cash costs of $693/oz, better than consensus forecasts for 179,000oz, at $734/oz.

The group posted a 24% rise in earnings before interest tax, depreciation and amortisation to $66m thanks to an increase in revenue and lower cash costs.

Numis said the performance was boosted by a marked improvement at the Bulyanhulu gold mine, with production of 78,400 oz supported by an 18% increase in grade.

“Whilst Acacia remains a preferred name as the potential at Buly is unlocked we pull back our recommendation from ‘buy’ to an ‘add’ following the recent rally.”