Broker spotlight: SSE, Royal Mail, Easyjet, Petra Diamonds, Wolf Minerals...


Deutsche Bank is one broker still mulling possible scenarios for companies in Scotland but other City scribes have mostly had their say already.

Looking at the utilities north of the broker that concludes a 'Yes' vote in today's Scottish independence referendum would add significantly to the risks facing SSE (LON:SSE).

Elsewhere, Royal Mail’s (LON:RMG) share price has been hit on several fronts in recent but it may have fallen far enough says Investec.

In the face of increased competition in the parcels market, the TNT complaint to Ofcom and tumbling market forecasts the easy call has been to avoid the stock, said the broker.

But a prospective dividend yield close to 5%, cash is still healthy and the multiples are increasingly attractive said the broker, though its rating remains hold.

Customer churn is a key metric when forecasting growth in the online divisions of the bookmaking firms, said Credit Suisse.

Paddy Power (LON:PAP €65 target) has been upgraded  to outperform on the back of its low churn and efficient use of cash.

William Hill is also rated outperform with a new target price of 370p, but Ladbrokes is out of favour with an underperform rating and 125p target.

The Swiss broker said Ladbrokes' 6.8% yield may seem attractive, however the free cash flow yield is similar to peers and it is concerned that Ladbrokes may struggle to finance or grow its dividend. 

Excess free cash flow leaves William Hill and Paddy Power better positioned to invest for growth than Ladbrokes, said Credit Suisse.

Easyjet (LON:EZJ) has raised its dividend payout ratio to 40% of profit after tax from one-third and said it will buy 27 more planes between 2015-18 to meet rising demand.

Nomura said the dividend ratio increase is welcome, but some investors may be disappointed that a more concrete statement on a special dividend has not been made. 

Hold with a target price of 1,500p.

3Legs Resources (LON:3LEG) has been downgraded to ‘hold’ from ‘buy’ by house broker Jefferies after yesterday’s disappointing well results from Poland, which it described as a sad end to a proper appraisal program.

3Legs is actively considering its options to return cash to shareholders in the most timely and cost-effective manner. End Sep cash is estimated to be £17m and the target price is now 17p from 40p.

Petra Diamonds (LON:PDG)  once again reported another year of impressive revenue and EBITDA growth, said Charles Stanley.

With the outlook for diamonds looking robust, Petra will continue to increase shareholder value long term, it added. 

With the potential for a return of capital to shareholders at the interim results, ‘buy’ with a price target of 238p (previously) 220p.

Finncap has started coverage of Wolf Minerals (LON:WLFE), set to open the first proper new mine in the UK for a generation or 33 years to be precise.

The Hemerdon mine, the fourth-largest tungsten resource in the world, is expected to enter production in next year  targeting and making it one of the very few tungsten mines outside China. 

The broker’s target price is 22p, implying 40% upside from the current share price.

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