Broker tips: Centrica, Antofagasta, Micro Focus International
HSBC trimmed its target price on shares of Centrica telling clients that political intervention and commodity prices were set to weigh on the company's earnings.
"The political will to intervene in the UK supply market remains undiminished post the election in our view," the broker's analysts said.
Furthermore, they no longer saw any prospect for a recovery in NBP natural gas prices.
On a more positive note, they believed that upstream cost-cutting would allow the company to maintain metrics consistent with a long-term debt rating of A to 2019.
Yet even then it was hard to see how Centrica would be able to grow its dividend, they said.
Analysts at Credit Suisse reiterated their 'underweight' stance on shares of Antofagasta, citing their near-record valuation and the deterioration in the company's previously high operational and corporate quality.
The shares were now trading at a near-record price-to-earnings multiple relative to the sector, analyst Conor Rowley said in a research note sent to clients, on the back of the rally in copper prices at the end of 2016.
However, the Swiss broker believed copper prices would remain capped in the near-term.
At present, the shares were changing hands at an 80% premium to the broader UK mining sector, with Credit Suisse's target P/E multiple of 19.0 implicitly assuming a reversion back to its long-term average of 30%.
Furthermore, the broker believed Antofagasta's volume growth out to 2019 would be the result mainly of higher grades and softer ore which were expected to reverse in 2020.
Citi downgraded its recommendation on shares of Micro Focus International to 'neutral', but said it maintained a constructive medium-term view.
In a research note sent to clients, the broker said the one-year risk-reward trade-off for the company's shares was more balanced following its recent share price gains.
The stock had outperformed the Footsie by 14% since announcing it would acquire US rival HP Enterprise Software, which suggested the expected synergies from the merger had already been largely priced-in, the broker said.
Other reasons for the broker's caution towards the stock was the near-term volatility in HPE's revenues and headwinds from tax.
Citi also saw near-term flowback risks following deal completion.
In terms of valuation, on a proforma calendar year 2017 basis the stock was changing hands at a EV/EBITDA multiple of 13.4.
However, Citi argued that longer-term valuation metrics were more appropriate given that the synergies from its merger with HPE would only come through fully by April 2021.