Broker tips: XP Power, Hummingbird Resources, Rotork

Liberum initiated coverage on electrical component manufacturer XP Power at 'buy' on Thursday, stating that an acceleration in earnings growth would drive a re-rating in the group's shares.

Liberum expects XP Power's earnings growth to accelerate from its 9% five-year average to 15%, which its analysis showed should drive a re-rating towards quality peers.

"Our peer group analysis shows how stronger earnings growth is the key for XP Power to re-rate towards quality industrials and more in line with its high EBIT and FCF margins," said Liberum.

Organic earnings growth was projected to increase 2.5 times to 11-12% as 350 basis points of margin expansion between 2019 and 2022 finally convert its leading sales growth into earnings. Strong free-cash-flow should also drive further growth through bolt-on mergers and acquisitions, said the analysts.

"On our estimates, that equates to a target price of 5,130p, and with 20% upside to the current share price, we initiate on XP Power with a 'buy' recommendation," said the analysts.

Analysts at Berenberg slightly raised their target price on precious metals miner Hummingbird Resources from 44p to 50p on Thursday after the group maintained its full-year guidance following an in-line second quarter of trading.

Berenberg said Hummingbird's second-quarter gold production from Yanfolila was 24,000 ounces, with 334,000 tonnes mined and 337,000 tonnes processed at an average mill grade of 2.36 grams per tonne.

Recoveries were 94.78% and gold sales were 31,520 ounces, with an average realised price of $1,663 per ounce and an all-in sustaining cost of $983 an ounce.

Production was, however, below management's initial expectations due to changes in the sequencing of the mine plan to safeguard the plant in case of Covid-19-related logistical issues, highlighted the analysts.

The German bank noted that total recordable injury frequency rate for the period was 2.3, below the company's target of 2.5 and the 2.82 achieved in the final quarter of 2019.

However, Berenberg noted that Hummingbird had maintained guidance of 110,000-125,000 ounces at an all-in sustaining cost of $995 an ounce - ahead of its expectation of 113,000 at $995.

"These results are in line with our expectation and guidance has been maintained," said Berenberg.

Citi analysts revised their target price for shares of flow control specialist Rotork's shares, telling clients that they had been far too harsh when it came to their estimates for the following year.

Previously, they had anticipated a 7.4% drop in 2021, versus the 3% growth they were now pencilling.

Hence, their earnings per share estimate was bumped up by 26% for next year and that for 2022 by 6%.

In turn, those estimate revisions led them to raise their target price for the stock from 270p to 345p.

For the back half of 2020, on the other hand, they anticipating a 7.5% year-on-year decline in organic sales.

"COVID uncertainty remains but Asia-Pacific downstream Oil & Gas is showing encouraging signs while we expect Water & Power to register [revenue] growth again," they said.

However, while drop-through in the six months to the end of 2020 was seen worsening to -33%, Citi stayed at a 'buy' recommendation for the shares.