Broker tips: Premier Foods, Fresnillo, Ashmore Group

Credit Suisse cut its price target on Premier Foods after coming off restriction on the stock, saying that management now had to show they made the right call after their "bold rejection of a potential offer from McCormick.

The Swiss bank retained its 'outperform' rating on the Mr Kipling and Oxo Cube maker but trimmed its earnings forecasts for the new financial year by 7%.

Management will need to deliver the revenue growth that formed the base of their rejection of the McCormick offer, but the fairly withering comment was that "2-4% looks an ambitious number for the company that hasn't yet delivered on the previous 1-2% target".

Premier Foods faces some short term investment costs of delivering this growth, with marketing set to rise £6-8m in the new year, which extra costs led to the cut in estimates.

However, directors have confirmed 2015/16 profits were as expected, though Credit Suisse's tracking of retail channels via AC Nielsen suggested sales remain subdued.

The rate of innovation has been picking up materially, with the Paul Hollywood range of 'artisanal style' banking flour now being sold in four major retailers, while the tie-up with Japan's Nissin also brings opportunities, analysts said.

"Nissin's presence on the register and McCormick's interest will likely keep a speculative element to the shares, though we don't see the former other than a commercial partner, albeit with a 20% holding."

On valuation, analysts declared that the equity is "highly geared into stability/growth in EBITDA, albeit the group has yet to demonstrate this - but if it can we believe the upside remains significant".

Fresnillo’s stock was downgraded to ‘sell’ from ‘reduce’ and its target price left at 800p on Tuesday by Numis.

Numis said the miner reported a solid first quarter performance last week, “however, at 2.27x premium to net asset value and with significant risk associated with the execution of the development profile we believe that the shares are trading at above fair value moving into a period of seasonal weakness for the precious metals”.

Fresnillo last Wednesday posted a 1.7% year-on-year fall in silver production to 12.2m ounces for the three months ended 31 March 2016, due to expected lower ore grade at the Saucito mine. The silver output included 1.2 million ounces from the Silverstream processing contract.

Gold output rose 26% to 230,000 troy ounces in the first quarter, bolstered by higher speed gold recovery from the Herradura and Noche Buena mines.

“Silver production was in line with our expectation but gold production was a 20% beat versus our expectation reflecting a higher speed of recovery and ore processed at Herradura,” Numis said.

Fresnillo expects to produce between 49 million and 51 million ounces of silver and between 775,000 and 790,000 ounces of gold this year. The company has also guided for an improvement in the silver grade at the main Fresnillo mine to an average of 242 grams per tonne. A combination of the mining of lower grade areas and increased dilution saw the silver grade fall to 220g/t in 2014.

"We view the recovery in Q1 from 222g/t in Q4 2015 as a positive step which partially offset the planned decrease in grade at the Saucito mine," Numis said.

Peel Hunt downgraded Ashmore Group to ‘hold’ from ‘buy’ and retained its target price at 270p after company reported its third quarter interims.

Total assets under management (AuM) at Ashmore rose 4% to $51.3bn in the third quarter compared with the previous quarter while net outflows slowed to $1.1bn.

The asset manager, which focuses on emerging markets, saw net outflows in blended debt, external debt, corporate debt, multi-asset and local currency.

The three months to the end of March saw strong returns from emerging markets assets as value was recognised and prices recovered from over-sold levels earlier in the period.

Peel Hunt said its current forecast is for pre-tax profit of £130.5m and earnings per share of 13.4p, broadly in line with consensus of £133m and 14.4p, respectively.

“Would expect to modestly upgrade this given rising AuM (versus our forecast of slight decline over the second quarter),” the analyst said.

“Also likely to be profit and loss benefit from US dollar strength versus pound and subsequent impact on cash balances. “

On the valuation, Peel Hunt said the stock has recovered strongly over last few months by 50% in three months and is now trading on December 2016 enterprise value/net operating profit after tax multiple of 16.4x, yielding 5.7%.

“Stock now needs forecasts to catch up, recommendation moves back to ‘hold’, target price remains 270p.”