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Broker tips: Ferguson, Centrica, Petropavlovsk

Thu 19 September 2019 15:03 | A A A

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(Sharecast News) - RBC Capital Markets downgraded shares of plumbing merchant Ferguson to 'underperform' from 'sector perform' on Thursday, trimming the price target to 5,100p from 5,200p on short-term caution.

"We like its market position, balance sheet and focus, but believe the share price has run too far," it said. It noted that the stock is up 20% since its third-quarter results, buoyed by an activist stake and the intention to demerge its UK business and consider the most appropriate listing structure.

"The CEO is also stepping down in November - we find the timing as odd and the handover period as short. In our view, this does add to the risk profile, although Kevin Murphy is a proven leader and has done a good job in the US," it said.

RBC expects a muted fourth-quarter performance and doesn't see a UK demerger or listing change as necessarily creating value. It said that while a UK exit makes sense, it is relatively immaterial. Meanwhile, a demerger will leave a domestically challenged business, which many larger funds will be forced to sell.

Jefferies upped its stance on Centrica shares on Thursday as it highlighted an attractive risk/reward in a broader note on utilities, in which it referred to the stock as a "value wildcard".

Centrica was boosted to 'buy' from 'hold' as Jefferies said the company's new strategy was likely to deliver stable earnings and a more resilient dividend and balance sheet.

"Clearly, there are execution risks relating to cost-cutting measures and disposals, but with the stock trading at a 50% discount to the utility sector (at historical lows of 8x forward price-to-earnings) and offering 6.7% cash yield, we see the risk-reward as attractive," it said. It has a 90p price target on Centrica.

Analysts at Canaccord Genuity upped their stance on London-based gold mining company Petropavlovsk from 'speculative buy' to 'buy' on Thursday, stating that some increased clarity had given it the confidence to upgrade.

With significant news flow coming from the company recently, Canaccord said it was increasingly confident on Petropavlovsk after achieving greater clarity on its strategy and the identification of several growth options.

The Canadian broker, which also raised its target price for the group from 12p to 16p, said Petropavlovsk's successful commissioning of four autoclaves at its POX Hub and the ramp-up in treating refractory concentrates from its Malomir mine had also given it much reason to believe in the group's outlook after witnessing things "progressing well" firsthand.

Canaccord noted that Petropavlovsk was currently constructing a flotation plant at its Pioneer mine, expected to enter production in late 2020 and double refractory ore processing capacity to 7.2 million tonnes per annum.

"The spare capacity at the POX Hub presents POG with a number of options," said Canaccord.

Lastly, Canaccord pointed out that one of Petropavlovsk's main ambitions was to reduce net debt and said it forecasts that the company could be net cash positive in 2022.

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