Broker tips: ITV, Acacia Mining, Inmarsat

Deutsche Bank (DB) cut its target price to 185p from 200p and reiterated a ‘sell’ rating for ITV after the broadcaster reported its first quarter results.

The bank said ITV’s first quarter results were even worse than lowered expectations.

ITV reported flat advertising revenue in the first three months of the year. The company expects it will continued to be flat the first half, blaming uncertainty ahead of Britain’s referendum on European Union membership on 23 June.

“This is not a temporary Brexit blip,” DB said.

“On a day when Facebook is reported to be set to overtake Channel 4 in ad revenues in the UK, and we estimate has already overtaken ITV in online video (consensus forecast +3%), consensus ad growth from 2017 needs to be cut too.”

Overall, however, revenue rose 14% to £755m in the first quarter, as non-advertising revenue was increased 34% to £428m.

ITV studios revenues jumped 44% jumped to £322m, driven by the acquisition of other production houses .

Chief executive Adam Crozier said ITV has a healthy pipeline of new and returning programmes, including Victoria, Cold Feet, The Voice and Alone, “which gives us confidence for the full year and into 2017”.

DB said ITV faces reinvestment risk as it needs to respond in programming and digital acquisitions.

“The stock is cheap versus history, but the world has changed,” the bank said, adding that there are higher quality US peers with better content.

Acacia Mining’s shares rose as

(CS) raised its target price to 380p from 300p and reiterated an ‘outperform’ rating on the stock.

CS said Acacia is trading at a low multiple and a discount to the broker’s net present value.

“We think this is an opportunity to buy a cash generative gold stock with a strong balance sheet and rerating catalysts in 2016,” CS analysts said.

“What we think the market has underappreciated is the cost reductions delivered to date and resultant margin improvement set for 2016.”

The company’s all-in sustaining costs is below $1,000 per ounces, the analysts noted.

As a result CS raised its forecast on earnings before interest, tax, depreciation and amortisation (EBITDA) margins to rise to 38% from 20%. The broker also expects peer leading free cash flow (FCF) yields over the next two years of 12% and a net cash balance of more than 20% of the current market capitalisation by the end of next year.

“In a blue sky scenario where the company delivers on its targets and Acacia rerates towards its global peers we see an upside valuation of £4.50 (implied 2017 FCF yield of around 8.5% versus 12% currently).”

A profit-warning from satellite-operator Eutelsat led analysts at Berenberg to question the explanations given by London-based Inmarsat to explain its own recently lowered near-term guidance.

Critically, Eutelsat cited pricing pressure and lack of growth in data and a much weaker-than-anticipated renewal rate of 65% with the US government.

Inmarsat was a 100% data outfit and Washington was its biggest customer, analysts Laura Jenssens, Sarah Simon and Robert Berg explained in a research note snet to clients.

Eutelsat referenced pricing pressure after large amounts of high-throughput satellites (HTS) launches and said its mobility business was "stable" according to the analysts.

"With [Inmarsat's] Global Xpress being an HTS data constellation, we think it cannot be immune to the pricing and growth pressures seen at Eutelsat and SES, albeit the magnitude of which is questionable. We note, however, the recent guidance cut may not be a coincidence," they explained.

Eutelsat also said renewals with the US administration were running at 65%, so since volumes were at a 'normal' 85% rate that meant pricing had seen "huge cuts" in recent months, Berenberg concluded.

"With Inmarsat discussing slower ramp of GX government revenues (ie timing, rather than structural), this raises questions as to whether the revenues are delayed to 2017/18 or in fact pricing pressure and competition is eroding this opportunity," the analysts added.

The London-listed outfit had suggested a slower ramp, but that revenues will come through at the same level next year and reiterated medium-term guidance.

"Inmarsat’s reasoning may not be realistic," Jenssens, Simon and berg said.

All told, the analysts said they still saw downside risks to its medium-term estimates for Inmarsat and even more so now.

They kept their 'hold' recommendation in place as wel las their target price of 880p.

However, they added that: "on our current estimates the stock still looks far from cheap [...] To justify our DCF-based GBp880 valuation, Inmarsat needs to start winning contracts to prove it can meet these expectations, particularly as competitors such as Gogo seem to be winning share."