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The Expert View: Barclays, BHP Billiton and Randgold
Our daily roundup of analyst commentary on shares, also including Hammerson and Lancashire.
by Sam Antrobus on Jan 25, 2016 at 05:00
Berenberg upgrades Barclays after shares slump
Although the outlook remains bleak for Barclays (BARC), Berenberg believe that they are at least now better reflected in the share price.
Upgrading his recommendation from ‘sell’ to ‘hold’, analyst James Chappell lists a target price of 200p on the shares, which rose 2.5% to 190.8p on Friday.
‘While the fundamentals remain poor for Barclays, we see its current share price better reflecting this following its 30% decline in the past five months,’ he said.
‘We forecast 2016 earnings per share of 20p, and a return on tangible equity of 7%, 30% below consensus,’ he added.
‘Barclays has another chance to change its strategy to unlock its 40% discount to tangible book value on 1 March. In our view, balance-sheet certainty is needed, which only a break-up of the group can bring. Judging by recent comments in the press, we remain less than hopeful.’
Rights issue likely for BHP Billiton
Scrapping its dividend to zero may not be enough to help beleaguered mining giant BHP Billiton’s (BLT) maintain its current credit rating.
Liberum’s Richard Knights reiterated his ‘sell’ recommendation and a target price of 550p on the shares, which rose 1% to 648.9p on Friday.
‘Slashing capital expenditure and even cutting its dividend to zero are not sufficient for BHP Billiton to realistically retain a “solid A” credit rating, if spot commodity prices and currencies persist,’ he said.
‘Given the company continues to be married to the idea of a “solid A” rating throughout the cycle, a rights issue looks likely.
‘The threat of a capital call will weigh on the shares, but its resolution, in conjunction with self-help measures of tighter capital spend and a reduced dividend, would close the value gap to Rio Tinto.’
Jefferies uncertain about Hammerson acquisitions
Property developer Hammerson (HMSO) may have just sewn up another big acquisition, but this does not necessarily spell great news for the stock price.
Jefferies analyst Mike Prew allocated an ‘underperform’ rating and target price of 584p on the shares, which rose 1.7% to 569.5p on Friday.
‘Hammerson’s £910 million Dublin retail adventure has been closely followed by the £335 million acquisition of the Grand Central shopping centre, Birmingham, next to the group’s existing Bullring shopping centre, so Hammerson was the natural buyer,’ he said.
‘Both seem expensive at 4% on exit rather than entry yields. Suspicion of an equity raise is likely to cap any recovery in the stock price with the shares trading on a 12% discount to the 638p December 15th net asset value with the 2015 results due on February 15th.’
Peel Hunt wary over Lancashire returns
Specialist energy, marine and aviation insurer Lancashire (LRE) has been downgraded over concerns surrounding returns in the current cycle.
Peel Hunt analyst Andreas van Embden has reduced his recommendation from ‘hold’ to ‘reduce’, with a target price of 520p on the shares, which were broadly flat at 603p on Friday.
‘Lancashire’s underwriting strategy is successfully protecting the core portfolio, mitigating the impact of ongoing margin pressure. Underwriting margins will remain positive but returns on tangible net asset value are dropping from [an estimated] 13% in 2015 to 11% in 2018,’ he said.
‘Returns will remain subdued until the cycle turns and we have materially cut our earnings per share estimates. Hence, the investment case rests on Lancashire’s ability to return more excess capital in 2016, which we believe is possible.
‘We suggest investors wait on the sidelines until the cycle turns or post a major event for which Lancashire is well positioned.’
Randgold highlighted as a ‘top pick’
Africa-focused gold miner Randgold (RRS) could represent a rare bright spot amongst the cloudy prospects for commodity stocks.
Barclays analyst Amos Fletcher highlighted the stock as a top pick and reiterated his ‘overweight’ recommendation and £48.00 target price on the shares, which rose 1.1% to £45.55 on Friday.
‘While industrial miners continue to struggle with the chronic downturn in their commodities, Randgold is likely to be a source of relative strength in 2016, in our view,’ he said.
‘The company offers rising production driven by higher grades and recoveries, resulting in declining unit costs, sustainably positive free cash flow yields at spot that support growing dividends, and a net cash balance sheet.
‘Unlike the industrial miners, Randgold has minimal mark-to-market earnings per share downside risk and a business designed for prices below spot, limiting writedown risk.’
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Look up the shares
- Barclays PLC (BARC.L)
- Hammerson PLC (HMSO.L)
- BHP Billiton PLC (BLT.L)
- Lancashire Holdings Ltd (LRE.L)
- Randgold Resources Ltd (RRS.L)