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The Expert View: BP, Rio Tinto and Tullett Prebon
Our daily roundup of analyst commentary on shares, also including RPC and AG Barr.
by Sam Antrobus on Feb 01, 2016 at 05:00
Barclays positive about BP’s resilience
Although oil prices have endured a tumultuous start to 2016, Barclays believes oil giant BP (BP) is better equipped than most to handle the volatility.
Analyst Lydia Rainforth maintained an ‘overweight’ recommendation and a 600p target price on the shares, which rose 1.6% on Friday to 374.5p.
‘Our dynamic modelling shows that even in the event of an oil price of $40 prevailing, BP could respond by reducing capital expenditure by a further 20% to $14 billion, which would allow the management to balance the books by 2018 with the current level of dividend maintained,’ she says.
‘Key to BP’s share price performance in the coming 12 months is continued evidence of the company’s ability to control costs.
‘With action already well underway, we continue to see BP as able to differentiate itself on this metric.’
Investec keen on AG Barr’s prospects
Investec analyst Nicola Mallard has been impressed with soft drinks manufacturer AG Barr’s (BAG) performance in tough market conditions and believes it can now kick on during the year ahead.
Mallard retained a ‘buy’ recommendation, with a target price of 632p on the shares, which rose 4.6% to 539.4p on Friday.
‘Despite a highly competitive soft drinks market, the group executed a solid Christmas season and in the final quarter, expects to show revenue growth of 2.5%,’ she said.
‘This is achieved against a strong comparable quarter in 2015 (+5%). In the second half of the year, the group will therefore show revenues advanced, which is a much stronger performance relative to the first half (-4.0%) although, at £257 million, full-year revenues will fall modestly short of the prior year (£261 million).
‘2016 proved to be a tough year, but the group starts afresh with the good plans for its brands in the coming year and a strong balance sheet.’
Dividend pressure looms for Rio Tinto
Dividend pressure is looming large for multinational mining giant Rio Tinto (RIO) and Liberum believes a cut must now lie on the horizon.
Retaining his ‘sell’ recommendation, analyst Richard Knights listed a target price of £14.95 on the shares, which edged 14p higher to £17.14 on Friday.
‘The deterioration of Rio’s balance sheet (on spot commodities) in recent months has been somewhat overshadowed by BHP Billiton’s more urgent need to cut its dividend and capital expenditure to protect its credit rating,’ he said.
‘We believe Rio’s management will need to cut its dividend within the next two years in order to maintain gearing below its 30% target level.
‘We now forecast a 50% cut in the dividend at its June 2017 results, although this could well take the form of a new dividend policy, such as a payout ratio.’
Healthy trading update for RPC Group
Despite worries over how currency fluctuations may affect profits, Deutsche Bank remains positive about packaging and container producer RPC Group’s (RPC) prospects.
Analyst Debbie Jones retained a ‘buy’ recommendation with a revised target price of 820p on the shares, which rose 0.5% to 744.6p on Friday following a third quarter trading statement.
‘Growth trends and operating performance were reportedly in-line with management expectations,’ she said.
‘The integration of Promens and GCS Group is progressing well. Polymer and foreign exchange still present near-term headwinds, despite favourable currency moves. These negatives should be more than offset by merger and acquisition benefits and positive organic growth (above trend versus peers).’
Tullett Prebon finishes 2015 with a flourish
A strong end to 2015 helped wholesale financial broker Tullett Prebon (TLPR) ease profit concerns following their acquisition of ICAP.
Analyst Paul McGinnis retained a ‘hold’ recommendation, but did not have a target price on the shares, which rose jumped 6.4% to 335.4p on Friday.
‘Tullett Prebon has issued a positive full-year trading update in respect of the year ending 31 December 2015,’ he said.
‘Having issued a profit warning on 6th November (just ahead of the deal to buy ICAP’s Global Broking division), the company has reported that market activity in some of the traditional interdealer products picked up in November and December, while [oil brokerage arm] PVM continued to trade well.
‘Excluding PVM, revenue in November and December was up 4% year-on-year in constant currency which compared to a year-on-year fall of 5% in the previous four months to October.’
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Look up the shares
- BP PLC (BP.L)
- Rio Tinto PLC (RIO.L)
- A.G.Barr PLC (BAG.L)
- Tullett Prebon PLC (TLPR.L)
- RPC Group PLC (RPC.L)