- Rio Tinto
- 29 April 2024 16:40:19
Source: Sharecast
At the start of the year, JP Morgan had taken a cautious view on miners with iron ore exposure, on the back of waning steel demand in China and improvements in supply.
But things have now changed: "Brazil and Australian exports have indeed improved (+5% and +2% year-to-date, respectively). However, China steel demand has proven more resilient as infrastructure demand offsets poor property sector demand (both ~30% of China steel demand) and excess output is finding its way to the export market," the bank said in a research note.
"With the iron ore market relatively more balanced medium term, we raise our 2023-25 iron ore price forecasts +6%/+13%/17%."
JP Morgan said that Rio Tinto now offers a more attractive valuation, trading at a free cash flow yield of 9% and 10% on 2024 and 2025 estimates. The target price was raised from 5,440p to 6,000p, and the rating was moved from 'underweight' to 'neutral'.
BHP's target price was also hiked from 2,320p to 2,550p, but a 'neutral' stance was maintained.
However, JP Morgan reiterated its 'overweight' recommendation for shares of Anglo American, as it raised its target price for the stock from 2,650p to 2,900p. The bank said Anglo "remains our top pick with stronger value unlock potential".
HSBC slashed its target price for Entain after an "anaemic" first half from the gambling company, but believes that the stock still offers good value, keeping its 'buy' rating.
The target for the shares was cut from 1,830p to 1,540p.
Interim results last month disappointed the market with EBITDA up just 6% year-on-year at £499m, as a weaker-than-expected performance in the online division was offset by strength in retail. The stock has fallen 16% since then.
"We think that the underlying pace of EBITDA growth at the group was flat to slightly negative, once we account for the contribution of M&A, and FX, and if we do not strip out the impact of the continuing tax increases in Australia," HSBC said.
"Over the course of the year, a lot of geographies seem to have struggled, either as a result of pandemic unwind (e.g. Australia) or competition (Brazil, Netherlands). And that’s before we think about the impact of regulation (UK NGR down -2% YoY, Germany NGR down -30% YoY). A big step up in central costs only aggravated the situation."
Nevertheless, the good news is that the second half "does not require a major improvement in underlying performance in order to hit company guidance/our forecast (which are already pitched conservatively)."
"Faster expansion in 2024 is required but, fundamentally, we believe there is still value at 2024e free-cash-flow yield of 6.1% and price-to-earnings ratio of 15.5x. We therefore retain our 'buy' rating."
Shore Capital reiterated its 'buy' recommendation on IG Group after the online trading platform's "resilient" first-quarter performance, estimating a big share-price recovery.
In the quarter to the end of August, total revenue nudged up to £242.9m from £241.8m in the same period a year earlier.
Shore Capital analyst Vivek Raja pointed out trading conditions were "softer", but said the 4% drop in active client numbers was "resilient" in the context of lower market volatility.
With IG reaffirming its medium-term targets, Raja said Shore Capital's forecasts aren't changing at this stage.
IG's stock is now down 14% since the start of the year, and while full-year results in July led to a temporary bounce in the shares, the stock has fallen 9% since then. "Sure, trading conditions have been softer over the past few months, though the issues CMC has faced don’t really apply to IG," Raja said.
The stock trades at just 7 times earnings with a dividend yield of 7% and a free-cash-flow yield in the mid-teens, which offers "far better value than CMC", Raja said.
"IG’s valuation is near historical lows despite resilient EPS momentum over the past three years. Meanwhile, the company continues to exercise a rolling share buyback programme to utilise part of its significant excess liquidity, which itself is supported by strong cash generation. Our prevailing fair value estimate of 1,250p suggests deep value."
