Broker tips: Shire, Dunelm, Glencore

RBC Capital Markets upgraded Shire to ‘outperform’ from ‘sector perform’, keeping the $240 price target ahead of the company’s fourth quarter results on Thursday.

RBC said that following the recent pullback, the share price reflects attractive value and future competitive threats in the haemophilia market.

“We have held for some time that Shire is a high quality pharmaceutical/biotech company with a strong management team. Our key concern keeping us on the sidelines was valuation plus, more recently, gaining a deeper understanding of Baxalta’s important haemophilia business given the potential for heightened competition over the next several years,” the Canadian bank said.

However, it has now reviewed the competitive threat facing the haemophilia portfolio and said the current share price more than accounts for the future competitive environment. RBC said the addition of Baxalta’s haematology, immunology and oncology franchises further diversifies Shire’s existing offerings. It argued the combined company has a strong, diverse pipeline with over 60 programmes in development – over 50 of these target rare diseases – and management expects over 30 launches from the combined pipeline by 2020.

RBC also highlighted Shire’s attractive rare disease portfolio, which contains a number of products with no or limited competition.

Canaccord Genuity has reiterated its 'hold' rating for Dunelm Group after the homewares retailer declared a special dividend and reported a solid first half.

For the 26 weeks to 2 January, the FTSE 250 list company lifted sales 10.3% to £448.1m, with store like-for-like (LFL) sales up 3.4%, though numbers were boosted by an extra six days of winter sale in the recent calendar.

LFL sales growth was driven by a strong performance from curtains and bedding, particularly the new Kids range.

With gross margins improving slightly, profits before tax rose 10.7% to £75.5m, while earnings per share grew 11% to 29.3p.

Cash generation continued to be strong and as well as the interim dividend being increased by 9.1% to 6.0p per share, a special distribution of 31.5p per share was announced, which will cost £64m and be payable to shareholders.

"These results represent another solid set of results from a quality company," Canaccord Genuity said.

The broker said given new chief executive John Browett's track record at Dixons Retail for "driving sales and profit densities and improving customer service, we would expect nothing less from him in pursuing and driving Dunelm's growth for the longer term".

The target price was left unchanged at 910p.

Societe Generale downgraded Glencore to ‘hold’ from ‘buy’ pointing to finely balanced fundamentals.

It said the mining sector has seen a dramatic rebound recently due to an FX-led bounce-back in commodity prices, with the FTSE all-share mining index erasing the losses from early January.

“Such a performance is all the more remarkable given the pain suffered by the broader market amidst concerns over slowing global growth. At this juncture, we do not see the right combination of fundamentals to sustain the positive momentum in mining names,” it said.

It expects Glencore’s fourth quarter production results on Thursday to show a significant quarter-on-quarter drop in the copper and zinc units, reflecting the cash preservation measures put in place.

SocGen reckons full year production is likely to come in at the lower end of management guidance for all base metals, with 1,450kt for copper and 1,420kt for zinc.

“The results are unlikely to be share price-moving given the market’s current focus on profit margins rather than tonnes mined,” the bank said.

It kept its 100p price target on the stock unchanged.