Broker tips: Ferrexpo, Spire Healthcare, Mediclinic
Ferrexpo got a boost on Thursday as Barclays double-upgraded the stock to 'overweight' from 'underweight' and hiked the price target to 300p from 140p on the back of rising iron pellet premiums.
The bank said pellet premiums are moving into uncharted territory. Spot prices are now at $78 per tonne FOB versus $58 per tonne contracted for 2018, with the recent push higher underpinned by expectations of the broader application of winter cuts starting in October.
Barclays said it expects further upward pressure on prices in the short term following news on Wednesday that the world number 2 pellet producer, LKAB, has shut down one of its mines for several months.
"Significant increases in spot pellet premiums drive upgrades to our forecasts and price target for Ferrexpo, and should lead to consensus 2019 earnings per share estimates rising substantially, in our view."
Barclays also highlighted the stock's "cheap" valuation, at 3.7x estimated 2018 EBITDA versus an average of 5x.
"Demand for high-quality iron ore is currently supported by supply-side reforms in China, strict environmental regulations to limit emission, ongoing steel mill profitability and increased capacity utilisation resulting in elevated pellet and Fe quality premiums," it said.
Spire Healthcare's long-term private and NHS healthcare targets look rather too ambitious for Jefferies, which downgraded the UK-focused stock and highlighted the attractions of South African former suitor Mediclinic.
Spire, one of the UK’s largest healthcare providers, told analysts in April that it was aiming for more than £200m in earnings before interest, tax, depreciation and amortisation by 2020, with 80% of sales coming from private patients.
But in a note published Thursday, Jefferies argued that Spire’s focus on self-paying customers was "unlikely to deliver" because of the provider’s weak presence in London, which accounts for around 40% of the market. Budget cuts at the NHS and Brexit also remained significant risks.
“Spire's 2022 targets already look ambitious. Six months later, it is increasingly clear to us that the targets are challenging and timelines are likely to slip,” analysts noted, with its estimate for 2022 EBITDA now 20% below guidance.
"We take a more cautious view on each of the three payer segments at Spire. We also see a risk of near-term downgrades, giving the ongoing challenging environment at the NHS and our view of targeted cost savings being unable to compensate rising wage costs, shortages of skilled staff and escalating rents.”
Jefferies has an 'underperform' recommendation on the FTSE 250 stock with a price target of 115p.
However, Jefferies reiterated its ‘buy’ recommendation on rival healthcare provider Mediclinic, which owns 29% of Spire, and increased its price target to 564p.
Mediclinic’s share price “continues to bleed despite a number of positive catalysts” said Jefferies, adding: “Our analysis reveals the market is overly pessimistic on Switzerland, where [its] expanded Geneva presence boosts margins while the new Swiss chief executive should help deliver on 2020 targets. With Dubai Parkview hospital now opened, Middle East is poised for growth.”