Broker tips: Spectris, Anglo American, StanChart

Investec has placed its rating and price target on Spectris under review after the company reported its full year earnings.

The electrical engineering group said statutory full year pre-tax profit fell 17% to £171.1m, although sales rose 3% to £1.19bn at constant exchange rates.

Growth in Europe and Asia was offset by a challenging environment in North America and the Rest of the World.

Chief executive John O’Higgins said 2015 was characterised by mixed trading conditions but the benefits of restructuring measures announced last July will “enable us to better align cost growth with sales growth in 2016”.

“There was nothing dramatic in Spectris’s results and outlook statement to change our view that this group is fundamentally sound, but currently lacking in market growth drivers,” said Investec analyst Michael Blogg.

“Much will depend on the USA, which decelerated in 2015 (-2% underlying), and various ‘Rest of the World’ markets, but Spectris is taking measured steps to reshape its cost base while maintaining investment for future growth (especially in new products).”

Anglo American’s restructuring plan is bolder than previously outlined in December, according to Canaccord Genuity.

Chief executive Mark Cutifani on Tuesday announced a new focus on diamonds, platinum and copper, with the total target for the disposals increased to $5-6bn by the end of 2016, with $3-4bn targeted from selling off its iron ore, coal and other bulk commodities this year.

The announcement came as the group reported a pre-tax loss of $5.5bn after $3.8bn of write-downs since the half year.

Underlying earnings before interest, tax, depreciation and amortisation of $4.85bn was down 38% but beat City forecasts, while underlying earnings per share came in at $0.64 per share, down by almost two thirds but again ahead of consensus estimates.

Having been downgraded to junk on Monday evening by Moody's, Anglo also set a target net debt-to-EBITDA ratio of 2.5 times as it aims to drag its bonds back to an investment grade credit rating.

Canaccord Genuity issued the company a ‘hold’ rating and target price of 350p, saying that results were broadly in line with expectations but the focus was on the restructuring plan.

“Anglo American will likely be seen as a forced seller and a price-taker by potential asset acquirers, and the company will need to tread carefully with government and labour, particularly in South Africa, where it plans to exit a substantial asset base, but retain diamond and platinum interests,” said analyst Nick Hatch.

“Speed is of the essence, however, particularly in the context of Moody’s downgrading of Anglo’s credit rating from investment to junk status yesterday. So a bold plan, but there remains substantial implementation risk.”

Standard Chartered was under the cosh after Investec downgraded the stock to ‘hold’ from ‘buy’ in light of the very recent share price performance.

It noted the stock has rallied 17.2% in just two days, to within 2% of the brokerage’s unchanged 460p price target, having hit a fresh 21st Century low of 387p on 11 February.

Aside from that though, Investec said nothing much has changed.

“As such we now are forced, somewhat hastily, to recommend that investors take profits (or cut losses).”

It said the fact StanChart continues to trade below its 465p November 2015 rights price is “merely a footnote in history”.

“We happen to believe that Standard Chartered’s capital position will now prove adequate, supported by significant ongoing balance sheet de-risking initiatives.”

Investec expects the bank’s CET1 capital ratio to strengthen to 13.9% in 2017 from 12.9% in 2015, but said it was the weak earnings outlook constraining its enthusiasm.

“We think that the outlook for impairments remains highly uncertain, with extreme volatility in the oil price seemingly driving sudden short-term moves in sentiment and/or expectations,” Investec said.

It sees better value in buy-rated Aldermore, Barclays, HSBC, Lloyds, OneSavings, RBS, Shawbrook and Virgin Money.

StanChart was also hit by a downbeat note from Morgan Stanley, which kept its ‘underweight’ stance on the stock.

It said the asset quality outlook for Asian banks has worsened since StanChart’s strategic review, noting slowing economies, and lower commodity and property prices.