Broker tips: Curry's, Anglo American
Deutsche Bank upgraded Currys on Tuesday to 'buy' from 'hold' as it turned more positive on UK retailers.
"With consumer confidence stepping up during Q2, political certainty and inflation under control, we expect UK discretionary spending will better track earnings growth in the next 12-18 months," it said.
DB said its most preferred UK retail stocks were now skewed towards the more cyclical names and lifted its price target on Currys to 95.0p from 80.0p, noting that the electricals retailer took significant self-help measures during FY24 to preserve cash, stabilise the balance sheet and protect margins against a backdrop of soft demand.
"Currys is now well placed to benefit from improving electricals demand, in our view; retaining tighter investment discipline and carrying a lower cash interest burden, a 1% step-up in like-for-like growth drops through to 13% higher earnings per share versus our base case (we model for 1.5% LFL, 20% EPS growth in FY25e)."
Berenberg reiterated its 'sell' rating on Anglo American on Tuesday, stating that the recently announced fire at its Grosvenor metallurgical coal mine in Australia had come at a bad time for the miner, which continues to "struggle operationally".
Anglo said on 1 July that it was forced to suspend production at Grosvenor after a coal gas ignition incident, with operations expected to take "several months" to get back up and running. Grosvenor was expected to contribute 3.5m tonnes of steelmaking coal to Anglo's 15.0m-17.0m total in 2024 – though the company said it will update the market with guidance "once more information is available".
The broker said it saw two clear impacts to Anglo’s business. Firstly, it thinks there will likely be a cut in coal production guidance, despite a strong H1 at Grosvenor. Secondly, Berenberg noted that, the fire has the potential to frustrate and delay the planned sale of the metallurgical coal business - a core part of Anglo's simplification strategy."
The German bank also pointed to another gas ignition at Grosvenor in May 2020, which caused the mine to be halted for roughly a year, impacting production for 12 to 18 months. As such, it predicts that Grosvenor will be offline "for much of 2025, similar to the 2020 situation", which will reduce next year's metallurgical coal production estimates to 13.8mt compared with the 17-19mt guidance.
"The company continues to struggle operationally, which we think is a key risk to consensus estimates. Management has had difficulty delivering on guidance, which we think it due to the previous management setting overly-optimistic and unachievable targets. We believe that the onus is on management to turn the story around and, without signs of progress, we expect market pressure."