Broker tips: DMGT, Anglo American, Fidessa

Canaccord said while the DMGT’s third quarter trading update last week “struck a more upbeat tone” the broker remains cautious on the outlook.

“Advertising revenues have been better since the first half warning, and showed further improvement at the start of the fourth quarter with digital growth more than offsetting print declines, but we think there is a likelihood that ad revenues will come under further pressure as the general economic environment weakens through the fourth quarter and into fiscal year 2017,” Canaccord said.

DMGT reported a 1% increase in underlying revenue for the third quarter. However, uncertainty surrounding the European Union referendum hit the advertising market.

Its DMG Media business, which includes the newspapers, saw underlying revenue fall 2% due to a weak print advertising market.

The group said third quarter performance was broadly in line with expectations and the full year outlook remains consistent with current market forecasts for adjusted pre-tax profit of £237-256m.

DMGT said Brexit has created some uncertainty, notably in respect of the UK advertising and property markets, but believes the company will continue to benefit from being a “diversified portfolio operating in multiple sectors across B2B and consumer markets, with the majority of operating profits being earned outside the UK”.

Canaccord reduced its earnings per share forecast for fiscal years 2016 and 2016 by 4.9% and 4.5% to 50.8p and 54.7p, respectively.

Anglo American got a boost on Monday as RBC Capital Markets upgraded the stock to ‘outperform’ from ‘sector perform’ and lifted the price target to 1,000p from 800p saying the tide is turning for the investment case

“With the balance sheet striding towards rehabilitation and volume improvements in H2, Anglo's rating likely to improve. Further, divestments provide catalysts for the shares,” RBC said.

The Canadian bank said Anglo’s first-half results were above both consensus and its forecasts despite disappointing copper production, with a strong effort to control or reduce costs across the group.

In particular, it highlighted $1.1bn of free cash flow as a positive and said the company’s balance sheet was beginning to look respectable.

Looking forward, it said that in the second half there should be a greater benefit on costs from volumes, productivity and cost cutting, including headcount.

While there will be lower activity in diamonds for seasonality reasons, volumes in copper, coal and iron ore should improve.

“Risks remain commodity prices, South Africa and the impact of any GBP strength on the share price,” RBC said.

Numis cut its rating on Fidessa Group to ‘add’ from ‘buy’ on Monday and raised the target price to 2870p from 2800p after the company reported its first half results.

The group, which supplies trading systems to the financial services sector, reported a 14% increase in pre-tax profit to £22.2m in the six months ended 30 June 2016 on a 9% increase in revenue to £158.3m.

Chief executive Chris Aspinwall said structural and regulatory changes have resulted in new opportunities and high levels of new business activity. Combined with a weaker pound, Fidessa has seen “strong growth” during the first half, Aspinwall said.

However, the company expects to see an increased headwind in 20167 a result of consolidations and closures in 2016. Fidessa also warned there was a “degree of uncertainty” surround the Brexit vote.

“The outlook is consistent with previous statements, although marginally more cautious given the unknown impact of Brexit on deal timings,” said Numis.

“With the shares up 23% since our 6 July upgrades, our recommendation moves back to a very comfortable ‘add’ on a slightly increased 2870p target price (was 2800p).”