Broker tips: Card Factory, Antofagasta, DiscoverIE
Card Factory got a boost on Wednesday as Peel Hunt upgraded its stance on shares of the greeting card retailer to ‘hold’ from ‘sell’.
"Forecast momentum has been negative, to the extent that the ordinary dividend will be cut at the prelims, in addition to the demise of the special," it said, adding that the downgrade after the "botched" Christmas trading season was "a major kitchen-sinking".
"We would have to make very dark assumptions to see CF miss the new EBITDA range, but the valuation assumes further catastrophe," it said.
Peel said that Card Factory is fundamentally a good, market-leading business.
"Strategically and tactically, this hasn’t been a vintage few years, but the price-to-earnings should not equal the yield. We move from sell to hold."
The broker has a 100p price target on the stock.
Deutsche Bank upgraded its stance on shares of Antofagasta on Wednesday following the recent correction on concerns about the impact of the coronavirus.
The bank upped Antofagasta to ‘hold’ from ‘sell’ and lifted the price target to 850p from 840p.
It noted that Antofagasta shares are down around 15% since mid-January, having suffered an "aggressive" correction following the outbreak of the coronavirus but pointed out that Antofagasta was one of the very few large-scale, low-risk copper producers globally.
"We expect the company to maintain its premium valuation driven by its long-life asset base, established track record and strong balance sheet," it said, adding that the group's limited free cash flow generation and political uncertainties in Chile prevent a more bullish view.
"However, 2020 should represent a trough volume year with higher volumes and lower costs expected in 2021 with the start-up of the Los Pelambres expansion and higher grades at Centinela," it said.
DB also said that it expects an above-consensus special dividend to be announced for FY19 at the full-year results in March.
Analysts at Berenberg upped their target price for electronic components manufacturer DiscoverIE from 530.0p to 630.0p on Wednesday, citing the group's "robust" third-quarter trading update from a week earlier.
Berenberg said DiscoverIE's update showed that strength in the company's higher-margin Design and manufacturing division had been sufficient to offset cyclical weakness in its custom supply unit.
DiscoverIE's order book was up 5% year-on-year in constant currency terms and Berenberg said there appeared to have been a pick-up in CS sales and orders in January. Gross margins ticked upwards 1% and earnings expectations for the full-year remained unchanged.
The German bank said it continues to believe that DiscoverIE offers a "differentiated and scalable business model", which can compound over time.
"With c£20m of FCF (after dividends) generated over the last 12 months, we think the next stage in its evolution will be an ability to self-fund its M&A," said Berenberg.
The analysts added that acquisitions were "a key part" of DiscoverIE's growth, with three deals for a combined £74m carried out in the last 12 months and two placings raising £60m.
"Given DiscoverIE's ability to generate cash (c£20m for acquisitions over the last 12 months), we expect the next stage of the group's evolution will be to self-fund these acquisitions," said Berenberg.