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Broker Spotlight brings some of the more intriguing and topical analyst coverage to centre-stage. The daily column aims to illuminate thoughts and opinions behind the big stories. London is one of the financial capitals of world. The influential and closely followed views of its analysts regularly move markets and split opinion. The Broker Spotlight column arms Proactive readers with the added insight from the often colourful thoughts and headline-grabbing valuations from the City’s analyst community.
Broker Round-up, including Anglo American, Rio Tinto, IAG, easyJet, Diageo, WH Smith
January 21 2013, 10:32am
As the snow continues to fall in London, City analysts are forecasting a slippery slope for mining giant Anglo American’s (LON:AAL) shares.
The last two weeks have seen two key strategic challenges answered by the company. Firstly, it has found a chief executive in the form of Mark Cutifani, while troubled platinum arm Amplats unveiled its long-awaited review in which it said it was axing 14,000 jobs.
Broker JPMorgan Cazenove says Cutifani is the standout candidate to replace Cynthia Carroll and to tackle Anglo’s key strategic challenges, which include cutting down Amplats’ workforce to a reasonable size, finding a solution at Minas Rio – where capital spending has ballooned to more than US$8bn – and turning around recent operational declines at its copper and nickel mines.
Cutifani, it seems, may be the right candidate, but he has a tough task ahead of him following Carroll’s decision to quit in the wake of shareholder unrest.
“We consider Mr Cutifani the stand out candidate for addressing AAL’s long term underperformance to peers (AAL has lagged BHP 413% and RIO 134% in the last 10 years) but we expect the shares to be weighed down in 2013 by the difficulty and fall out of implementing essential operational change in South Africa, from where 54% of AAL’s FY’13E earnings are source,” said mining analyst Fraser Jamieson.
The broker keeps his ‘underweight’ advice and lowers his target price by 40p to 1,630p.
Anglo also failed to make the UBS podium of best miners, a list that included the likes of Rio Tinto (LON:RIO), Ferrexpo (LON:FXPO), Kazakhmys (LON:KAZ) and Glencore (LON:GLEN)/Xstrata (LON:XTA).
Analyst Julien Garran reckons we are in the midst of a sweet spot for earnings momentum in the mining sector.
He sees strong earnings momentum continuing through the second quarter of 2013, something that is a “powerful driver” of share price performance.
Garran tips lagged cost inflation and a loss of revenue momentum to kick in around July, warning investors to stop playing the earnings momentum story by May.
Investors looking for a sector to get their teeth into should eye up the airline industry, according to Credit Suisse.
It sees execution on turnaround plans coming into view after a number of carriers were forced to restructure.
“In our view, 2013 will prove a crucial year for investors to judge the likelihood of success of respective flag carrier restructuring efforts,” said Neil Glynn at Credit Suisse.
He lifts British Airways and Iberia owner IAG (LON:IAG) to ‘outperform’ as he expects progress to be made on the troubled Spanish airline, which the market is already beginning to take note of.
In the run up to Christmas Iberia was bracing itself for strikes protesting at planned job cuts, but unions called them off.
While no deal has been struck between the two parties, the broker’s target price soars 75p higher at 259p, factoring in negotiating “a satisfactory deal with labour”.
Investec waded into the debate on the sector when it cut budget carrier easyJet (LON:EZJ) to ‘hold’ from ‘buy’.
“The stock was our key 2012 airlines pick, but the shares have outpaced the market and we now project a period of share price stability rather than material growth, coupled with uncertainty over the outcome of a major new aircraft order in 2013,” it said.
Investors in alcoholic drinks giant Diageo (LON:DGE) will have done very well for themselves over the past year, with shares up over 30%.
However, shares lost 1.6% today on the back of a downgrade from UBS.
The Swiss broker now believes the Smirnoff and Guinness maker’s stock will not climb much higher, dropping it to ‘neutral’ as a result.
Small cap specialist Numis believes WH Smith (LON:SMWH) could provide investors with a late Christmas present when it reveals how it fared over the festive season.
The broker says the trading update will provide yet more evidence of the stationer’s famed trading discipline and keen margin focus as it moves its recommendation to ‘add’ from ‘hold.
