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The Expert View: Randgold, Berkeley and Legal & General
Our daily roundup of analyst commentary on shares, also including Hammerson and Rank.
by Michelle McGagh on Feb 10, 2016 at 05:00
Randgold valuation favourable to peers
Africa-focused gold miner Randgold Resources (RRS) is showing strength in a difficult market, according to Barclays analyst Amos Fletcher.
Fletcher reiterated his ‘overweight’ recommendation and target price of £48.00 on the shares, which fell 1.6% to £59.05 yesterday.
‘Randgold delivered another strong operational and cashflow performance in Q4 with production rising 7% quarter-on-quarter to a new record, cash costs down 10% quarter-on-quarter and strong free cashflow generation,’ he said.
‘The investment case remains on track: we believe Randgold offers a combination of rising production driven by higher grades, declining capex, rising net cash and as a result strong dividend upside potential. The company should be in a position to fund its next mine development and pay a high single-digit medium-term dividend yield. This compares favourably to the UK mining peer group in virtually all respects, while trading at a 14% 2016 price/earnings ratio discount to Fresnillo.’
Go long, not short on Berkeley
Investors may be betting against house builder Berkeley Group (BKGH) over fears of an over-heating London property market but Jefferies says investors should keep buying the stock.
Jefferies analyst Anthony Codling retained his ‘buy’ recommendation and target price of £46.50 on the shares, which fell 1.3% to £30.90 yesterday.
‘Perhaps the box office hit The Big Short is spurring investors to short Berkeley Group in what some perceive as an overheated London housing market,’ he said.
‘We would not short Berkeley Group as its investment case is based on strong foundations, solid group and physical properties rather than intangible synthetic mortgage products. We still believe cash is king and Berkeley will meet its promises to return cash to shareholders; go long, not short.’
Hammerson: positive news from Irish division
Deutsche Bank analysts met with the Irish division of property developer Hammerson (HMSO), which is confident of securing new properties this year.
Deutsche Bank analyst Oliver Reiff retained his ‘buy’ recommendation and target price of 775p on the shares, which edged 9p lower to 540p yesterday.
‘The Irish portfolio of loans secured against prime retail assets in Dublin represents c.10% of Hammerson’s assets. Management remain confident in taking ownership of the assets (in particular the Dundrum shopping centre),’ he said.
‘We see this acquisition as strategically logical as it gives Hammerson exposure to prime shopping locations in a high density area.’
He added that ‘competitor threats [are] limited [in the] medium term’ and ‘the site next to Dundrum is likely to be used for retail extension and/or residential’.
L&G portfolio breakdown allays investment fears
Insurer Legal & General (LGEN) has provided details of its bond portfolio in order to allay market fears.
Shore Capital analyst Eamonn Flanagan reiterated his ‘buy’ recommendation but does not have a target price on the stock. The shares were flat at 202.4p yesterday.
‘In a move to allay fears in the market over its bond portfolio, L&G has set out an up-to-date split of its book as at the end of December 2015. The portfolio amounted to c.£39 billion at the end of the year, down from £40.7 billion at the end of 2014. By credit rating, c.4% was AAA, 28% was AA, 33% was A, BBB accounted for 31% and the balance was BB or below – to us, this is a sign of the level of security within the portfolio and the conservative approach taken by the fund managers,’ he said.
‘We view the economic basis underlying the investment case for L&G to be robust and retain our expectations for an 18% increase in the 2015 dividend to 13.25p.’
Rank Group on a winning streak
Gambling company Rank Group (RNK) is delivering improvements and catalysts are in place for a re-rating.
Peel Hunt analyst Nick Batram retained his ‘add’ recommendation and increased his target price from 289p to 292p. The shares fell 1.8% to 255.4p yesterday.
‘The H1 results demonstrated solid underlying progress,’ he said. ‘The straight-forward strategy, laid out by chief executive Henry Birch, is already delivering improvements across the business and this has been recognised by the rerating.
‘The next stage of this process will see the new digital platform launch (by end of March) with further upside presented by potential M&A. We continue to see good long-term upside and retain our “add” recommendation.’
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Look up the shares
- Berkeley Group Holdings PLC (BKGH.L)
- Legal & General Group PLC (LGEN.L)
- Hammerson PLC (HMSO.L)
- Rank Group PLC (RNK.L)
- Randgold Resources Ltd (RRS.L)