Broker tips: Serco, Ecora Resources

The bank said its analysis suggests that Serco can generate double-digit earnings per share growth in the medium term.

Firstly, JPM said Serco's revenue growth was "largely acyclical", given the exclusive focus on government customers.

"Serco’s strategy has been to expand further into attractive target markets, with a particular emphasis on US defence (deepening the current Navy focus and winning work elsewhere, e.g., with the Air Force/Space Force) as well as US civilian Federal services.

Secondly, JPM sees scope for margins to improve further, chiefly due to an improving mix and also as a result of a greater focus on contract profitability management.

Finally, JPM said Serco can continue to utilise its FCF for M&A and buybacks.

Citi said it used a discounted cash flow to derive its target price, but also considered a sum-of-the-parts approach that suggests Serco’s current valuation does not give the stock full credit for its US defence exposure, giving circa 30% upside potential.

Analysts at Berenberg updated their investment model on Ecora Resources on Monday and hiked their target price on the stock from 140.0p to 150.0p following the release of an updated feasibility study on the Santo Domingo project in Chile.

Berenberg said Santo Domingo was a high-grade copper-iron-gold project, owned and operated by Capstone Copper, in which Ecora holds a 2% net smelter return royalty over the project, including the highest copper grade portion of the deposit, which was expected to be mined during the initial seven years of production.

The German bank said the feasibility study demonstrated "a robust project", with an after-tax net present value of $1.7bn and an after-tax internal rate of return of 24.1%. Moreover, given that Santo Domingo was fully permitted and first in the development pipeline for Capstone Copper, Berenberg remains confident that the project will be built.

"We update our model for the updated FS on the Santo Domingo project, which increases our project NPV to $86.0m from $78.0m. Once fully online, we estimate a portfolio contribution of circa $22.0m over the initial six years of production (c20% of portfolio contribution), driving a step change in Ecora’s royalty revenues. We also make a positive adjustment to our 2025 royalty estimates from the Kestrel metallurgical coal mine in Australia to bring our estimates in line with guidance, and adjust our Mantos Blancos (Chile) volume forecasts following Capstone's Q2 report," said Berenberg, which has a 'buy' rating on the stock.

"Following a negative reaction from the delay to West Musgrave (Australia), we think that the Santo Domingo FS is positive for sentiment and hopefully marks the bottom of the weakness in the shares. The stock is trading on 0.38x NAV and 4.6x 2025E EBITDA."