Broker tips: Hammerson, DCC, Antofagasta

RBC said Hammerson's planned switch from being a European shopping centre specialist to a more diversified regional UK REIT was consistent with the appointment of Rob Noel as chairman but added that the move actually created "a number of challenges"

The Canadian broker believes various factors typically lead management to move quickly to sell properties that are no longer a stated focus. However, RBC said the current market environment was likely to make disposals "even harder than normal" for a committed seller.

"Restructuring all its UK leases, significant management change and weak macroeconomic prospects add to the challenges of delivering successfully on its plans in our view," said the analysts.

As a result, RBC reduced its 2020-2024 underlying earnings per share forecasts by 57-73% and EPRA net tangible assets by 37-54% to reflect the weaker than we expected first-half results from the group and additional disposals on weaker terms.

Barclays downgraded its stance on shares of sales, marketing and support services company DCC to ‘equalweight’ from ‘overweight’ on Friday, slashing the price target to 6,900p from 8,100p as it said it was "struggling for upside".

The bank said M&A activity has been more subdued than it expected since the 2018 equity placing, while organic growth in recent years appears to be tracking below management's long-term guidance that around a third of profit growth is organic.

"With return on invested capital gently declining in the last few years, question marks about the future growth prospects for some divisions and a relatively unattractive ESG profile compared with other stocks in the sector, we struggle to see significant upside," Barclays said.

Analysts at Deutsche Bank downgraded mining group Antofagasta from 'hold' to 'sell' on Friday, stating the firm's premium was "unjustified".

While the analysts said they remained "constructive" on the outlook for copper, they highlighted the Antofagasta shares had been "very strong" year-to-date, up 25% compared to the 5-10% for peers and 5% for copper prices, with no "obvious" underlying operational drivers.

DB expects Antofagasta to maintain its premium valuation driven by its long-life asset base, established track record and strong balance sheet. However, it stated cash flows would remain "constrained" with "a material step" up in capex expected in from the second half.

The analysts also anticipate that costs will increase in the second half as tailwinds in the first and political uncertainties in Chile will keep capex "structurally elevated" for the next five years.

"Valuation, at over 8 times enterprise value/underlying earnings, has moved to the top end of its range, a warning signal historically," said Deutsche Bank.

Despite the downgrade, DB did up its target price on the firm from 870.0p to 920.0p.