Broker tips: Premier Oil, Flybe, St James's Place

Premier said on Thursday that was in the final stages of negotiations with its banks and private bondholders on its refinancing. The oil producer said its lenders provided a revised term sheet last Friday, which will preserve the full amount of the existing facilities including undrawn amounts and amend the group’s financial covenants to provide sufficient headroom until after the North Sea Catcher field comes on stream next year.

Jefferies said the receipt of a revised term sheet from its principal lenders “is crucial evidence of bank support, and more importantly, support including unchanged facility size”.

The bank said Solan production issues at the second producer are frustrating, but since it hadn’t given the field full benefit of the expected 20,000-25,000 barrels of oil equivalent per day plateau, its forward group production estimates are not hit so hard.

In addition, it said that the small reduction in net debt that Premier pointed to on Thursday, to $2.8bn, is an important step in deleverage.

HSBC upgraded Flybe to ‘buy’ from ‘reduce’ and lifted the price target to 55p from 20p, saying the company is in a substantially better place that it previously thought.

The bank said the group’s first-half, reported earlier this month, was much better than it expected with operating profit and underlying pre-tax profit both roughly treble its estimates.

“We were pleasantly surprised by the yield performance of Flybe in H1, whilst our forecasts for both other revenues and costs undershot significantly,” it said.

In addition, HSBC said it was encouraged by Flybe’s hedge portfolio. It noted the business is very exposed to the USD/GBP exchange rate and fuel price.

“We now know FY18 USD/GBP is 71% hedged at USD1.44 and FY18 fuel is 71% hedged at USD487/MT, both more than double the protection we previously anticipated.”

The bank said Flybe was “taking back control” and executive chairman Simon Laffin offered a credit presentation on how for the first time since the IPO, the group will have control over its capacity after the end of full-year 2017.

“Until now Flybe’s capacity has been growing at a rate dictated by the previous management’s necessary actions to reverse out of legacy aircraft orders. From the 80 aircraft fleet at FY17, Flybe will now be able to manage its fleet to 65 by FY20, or grow it to 84, depending on the market.”

Bank of America Merrill Lynch upgraded St James’s Place as it took a look at the insurance sector on Friday, reversing some of its post-Brexit conservatism in the wake of a significant rise in bond yields.

It upped St James to ‘buy’ from ‘neutral’ and lifted the price target to 1,090p from 1,070p. It said SJP is a high-quality company which has slightly underperformed the UK asset management space in USD terms following the Brexit vote despite positive results over that period.

“We think that consensus cash generation forecasts fail to allow for FX tailwinds, positive equity markets and strong operating performance in recent quarters.

“We believe we sit 5-8% ahead of consensus for underlying cash generation. Despite potential bumps along the road as the terms of Brexit become clear, we think this is a particularly attractive entry point for a high quality compounder.”