Broker tips: Kaz Minerals, Micro Focus, Reach
RBC Capital Markets initiated coverage of copper miner Kaz Minerals at 'sector perform' with a 590p price target, as it said the stock looks fairly valued.
RBC said that with strong copper production now largely delivered and ongoing commitments to capital spend reducing free cash flow, Kaz now looks fair value.
"The group's strategy from here is long dated growth that requires a bullish price outlook," RBC said, adding that it expects lower prices into the first half of next year, which should mean that investors will get a better entry point to shares.
RBC said Kaz management has undoubtedly done an "excellent" job in delivering two large mine builds in recent years, driving an impressive compound annual growth rate in copper production.
However, growth from here should be lower and the ongoing capex spend at the Aktogay mine flows through to relatively muted free cash flow and a dividend yield of just 1.6%, lower than both EMEA peers and the diversified miners, it said.
"Apart from moves in copper we think Kaz shares may fall into a holding pattern whilst investors see when (if?) the group's next greenfield 'mega-project' Baimskaya in Russia is sanctioned, we think likely in late 2019."
JP Morgan Cazenove upped its target price on Micro Focus on Monday to reflect the cash inflow from the $2.54bn disposal of the SUSE business segment.
Cazenove analysts upped the target prices to 1470p from 1120p, with the sale approved by shareholders in August and expected to complete in the first quarter of 2019.
The new target price also takes account of $171m share buybacks so far completed and further share buybacks anticipated to a combined aggregate value of $400m.
"Our model reflects the discontinuation of SUSE from FY19 onwards, though our FY18 estimates still include SUSE (as this is how the company will be compared against its original guidance)," analysts said.
They expect a $1.6bn return of value in the second half of next year on top of the share buybacks, which sees explains the adjusted diluted earnings per share neutrality in FY19 despite the loss of SUSE profits and also the double-digit EPS accretion in FY20.
Analysts at Barclays reiterated their 'equal weight' rating on British newspaper, magazine and digital publisher Reach on Monday, highlighting the firm's "impressive end to the year".
Reach said in its pre-close trading update that it anticipates an organic revenue decline of roughly 5%, ahead of the bank's expectations, as a result of an improved showing from its print advertising wing, which had more than offset a weaker digital growth trend.
Barclays also noted that Reach had "squeezed out £1m more savings" from the Express and Star deal, contributing to its decision to raise its adjusted operating profit and EPS estimates for fiscal year 2018 by 3%.
The revenue also "tweaked" its expectations for the media giant's FY18 revenues higher.
Lastly, and as regards the company's cash flow, property sales and lower payments related to Trinity Mirror's phone-hacking hacking scandal led the bank to believe Reach's net debt position was set to improve moving forward.
"All in, this is an impressive end to the year for an unloved stock. Management is again delivering on cost, but revenues are also slightly better. We do see significant short-term uncertainty from Brexit and so we remain equal weight."
Barclays also stood by its 65p target price on Reach, saying it had trimmed its valuation multiples due to the derating seen in peers.