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Broker tips: Petropavlovsk, ABF, Man Group

Mon 21 October 2019 08:49 | A A A

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(Sharecast News) - Analysts at Cannacord Genuity reiterated their 'buy' recommendation and 16.0p target price on shares of gold miner Petropavlovsk thid quarter sales and production data.

With nine-month gold sales up by 24% on the previous year's level a 351,400/oz. and own mine sales of 342,600/oz., the broker said that the company's forecast for full-year own mine sales of 450,000-500,000oz was "readily achievable".

However, "harder to determine, is the ramp-up of sales from third-party concentrates, particularly since these are likely to be batch-treated," analyst Nich Hatch said in a research report sent to clients.

Year-to-date and for the third quarter, Petropavlovsk had only produced 13,100/oz. of gold from third party concentrates, versus the 100,800/oz. that had penciled-in for the year.

"Overall, however, we see this as a significant additional revenue generator for the group. We will review our forecasts in light of today's release and positive recent revisions to CG's gold price deck."

Analysts at Berenberg reiterated their 'buy' recommendation for shares of Associated British Foods, telling clients that the combination of a valuation discount for the firm's fashion unit, Primark, and signs that the sugar price was "bottoming out" made for a good entry point into the shares.

They also pointed out how the stock was - taking away the dip in the share price in December 2018 - changing hands at its lowest level since 2012.

A comparison between peers' valuation multiples and those of ABF's smallest units revealed that Primark was trading at a 44.0% discount to Next - instead of the typical historical premium of 19.0%.

That was "despite its superior business model (2x sales densities) and significant international growth opportunity."

Furthermore, a poor back half of the year for Primark that had "spooked" investors, softness in Sterling and uncertainty around the sugar price had all weighed on the shares, the analysts said, but they went on to add that the current weakness was now more than priced in.

Regarding Primark, the analysts believed that "this weakness is more than priced in, creating a buying opportunity" and went on to emphasise the company's "unique" business model and said that the international opportunity for the unit was "underappreciated".

"We forecast international to drive a 5% revenue and 4% EBITDA CAGR for Primark over the next three years, compared with 3% and 0% respectively for Next," they said in a research note sent to clients.

As an aside, given ABF's dominance of the UK sugar market and proposed changes to the UK import tariff regime, they believed that ABF would be a net beneficiary in the event of a hard Brexit.

Analysts Michelle Wilson, Graham Renwick and Michael Benedict did however trim their target price for the shares from 2,800.0p to 2,700.0p.

ShoreCap analysts cut their 'fair value' estimate for shares of Man Group following the figures on third quarter assets under management released by the fund manager ten days before, but stayed at a 'buy' given the attractions of the outfit's business model.

Contrary to what they had anticipated, following the AuM update, they reduced their estimates for profits before tax in 2019, 2020, and 2021 by 7.0%, 5.0% and 6.0%, respectively.

The update revealed that "a sharp correction" in a number of AHL strategies in September had reversed most of the positive performance seen in July and August, leading the analysts to cut the projection for Man Group's full-year net performance fees by $22.0m.

On top of that, and reflecting a challenging flow environment, the firm had reported net outflows of $1.1bn during the quarter, an amount equivalent to 0.9% of AuM, which saw them double their assumption for full-year net outflows to $2.8bn.

In turn, that reduced their end-year AuM forecast from $117.8bn to $113.7bn, contributing to knock-on PBT downgrades for 2020 and 2021.

Nonetheless, they stayed at a 'buy' on the shares, telling clients that the market was undervaluing the firm's average through-cycle performance.

"While September's reversal robbed us of what we thought would be an upgrade, we continue to view Man's business model as the best alignment of investment performance with client's objectives and think that the market fundamentally undervalues the profits based on any 'through-cycle average' performance fee."

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