Broker tips: Mondi, Inmarsat

Digital Look Sharecast | 17 Feb, 2017 12:50 | | |

Mondi

JPMorgan Cazenove upgraded paper and packaging company Mondi to ‘overweight’ from ‘neutral’ and lifted the price target to 2,070p from 1,600p.

The bank said it expects the tightening in Mondi’s key markets and rising old corrugate container/pulp input costs – from which Mondi derives net benefit as a mostly integrated producer – to support price hikes from the second quarter.

This drives upgrades of around 6% to its FY17 earnings per share forecasts and 3% to FY18 estimates.

JPM pointed out that Mondi’s key markets are tightening on the back of strong demand, limited near-term capacity additions and lack of spare capacity in the US (a major exporter into Europe), assisted by rising input costs.

“Moreover, we expect Mondi’s balance sheet to continue to offer optionality in the form of further M&A or cash returns, given low levels of leverage.

“On 14.3x FY17e price to earnings, some of the improved outlook is priced in, but Mondi tends to rerate in a price hiking cycle and, in a reflationary environment, we think there will be more to go given improved pricing power.”

Inmarsat

Analysts at UBS slashed their target price on stock of Inmarsat on expectations the company would stop increasing its dividend payout.

Inmarsat would do so - possibly beginning with its fiscal year 2016 numbers - until the divi was covered by its equity free cash flow, the Swiss broker said.

Markets on the other hand expected it to continue growing it in 2017 at a clip similar to that projected by the consensus of between 4% and 5%.

On a more positive note, that would allow Inmarsat to invest in long-term opportunities and avoid undue pressure on the balance sheet while its EFCF was "limited and uncertain".

UBS also expected Inmarsat to lower its fiscal year 2018 revenue guidance.

The analysts cut their target price on the shares from 810p to 550p and slapped a 'sell' recommendation on the stock, down from 'neutral'.

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