Broker tips: Victoria, Glencore, Game

Analysts at Berenberg said a share pullback at Victoria was "overdone" and that not all repair, maintenance, and improvement firms are made equal.

Berenberg, which reiterated its 'buy' rating and 950p target price on Victoria's shares, which since the end of January 2018 have lost roughly 20% despite seeing no news-flow from the company.

The pullback Berenberg attributed to profit-taking, the range of weak data points emanating from the UK RMI market, and broader concerns about Britain's consumer environment.

But, with the shares back trading a 13.7 times March 2019 earnings and 9.4x EBITDA, "we think the pullback is overdone," Berenberg's analysts said.

While the recent results from DIY retailer Kingfisher pointed to "softer Q4 sales reflecting weaker demand for big-ticket items", Berenberg pointed out that the difference over at Victoria was that, as a flooring manufacturer, there are several factors that had been overlooked in the recent sell-off.

"The performance of companies in the UK RMI market has varied quite substantially in recent months – firms such as Volution, Marshalls and Howden have navigated the broader weakness well, while businesses such as Safestyle and Carpetright have not. We believe Victoria shares more characteristics with those companies that have done well than those that have not," it said.

Glencore stands out in a UK mining sector that is cheaper than the wider market and mid-cap sector peers, Credit Suisse analysts said.

The analysts increased their price targets for Glencore, Anglo American and KAZ Minerals as they predicted a "mid-cycle re-rate" for mining shares, potentially in the second half of 2018.

The sweet spot is past for mining stocks after they recovered from the commodities rout of 2015. The shares will "trough higher" as dips occur at higher levels because investors are gaining confidence, the analysts said.

The analyts' star pick is Glencore, maintained at 'outperform' with a target price increased to £4.90 from £4.70. The miner and commodities trader agreed on 20 March to buy Rio Tinto's interest in the Hail Creek coal mine in Australia for $1.7bn (£1.2bn).

"After rebuilding its balance sheet, Glencore has not lost its sense of opportunism and remains a growth-driven company cementing five bolt-on acquisitions and two divestments last year, in an increasingly capital efficient manner," they wrote.

The analysts increased their target price for Anglo American to £17.20 from £15.80 and for KAZ Minerals to £10.50 from £9.50 and kept an ‘outperform’ rating on both stocks.

Analysts at Canaccord reiterated their ‘hold’ rating of Game Digital on Tuesday as the positive attitude of the computer game retailer's management team is offset by uncertain results of the collaboration with Sports Direct.

The collaboration sees the two companies cooperating on the Belong loyalty scheme, which will allow customers to pay to play the latest games on in-store PCs and consoles.

Canaccord analysts reduced the target price for shares in Game Digital to 35p from 40p as the retailer has suffered what its management refers to as a “small delay in earnings growth” due to implementation of the Belong plan.

This factor coupled with delays of big-hitting titles such as Rockstar’s next instalment in the Red Dead series has led Canaccord to cutt Game’s 2018 full year EBITDA estimate by 14% to £10.5m, noting no dividend is expected in 2018 either.

Forecast EBITDA for 2019 was cut a further 4%, reflecting a potentially improved calendar of new videogame releases, while Canaccord analysts view 2020 as an essential year due to the projected release of a new, next generation Sony Playstation console.

The company’s net cash is also expected to be slightly improved after “good capital management” and the disposal of Multiplay Digital.

In closing, Canaccord said: “While our target price represents material upside, given sector volatility and the illiquidity of the equity, there can be sharp, short term movements in the Game share price. From a longer term, more fundamental perspective, we need to see a return to positive estimate momentum in the core, as well as a clear route-map for Belong, before we can be more positive on the shares.”