Platinum producer Lonmin PLC (LON:LMI) was one of the top performers yesterday after an upbeat statement, but it is not out of the woods yet.
So says Deutsche Bank, which has nevertheless more than doubled its price target to 105p from 45p, after changing its net present value multiple to one times discounted cash flow, based on management's delivery of the business plan and in line with its treatment of other South African metals producers.
That still puts the German bank's price target almost a quid below Lonmin's current share price and, not surprisingly, the stock remains on Deutsche's sell list.
Lonmin said it ended the first half of its financial year with net cash of US$114mln, which was well ahead of Deutsche's forecast of US$69mln, but the bank noted Lonmin sold 40,000 ounces of platinum more than it concentrated, and it spent less on retrenchments.
“The business plan buys Lonmin time for PGM [platinum group metals] prices to rise, but we do not see this happening before it has to start spending on replacement ounces. As such, Lonmin does not generate FCF [free cash flow] post-rising capex [capital expenditure] on our forecasts until next decade,” the team at Deutsche predicted.
Count Citi among the Lonmin bears as well. The US bank expected underlying earnings (EBITDA) of US$18mln for the first half of the year and Lonmin delivered underlying EBITDA of US$29mln.
“Despite the significant progress in containing capital expenditure costs, our concern is that the current level of capex is an unrealistically low level for application in the medium term, without medium-term production falling below targets,” wrote Citi analyst Jon Bergthell, as he maintained his 'sell/high risk' recommendation.
A review of the UK motor insurance market by Aussie finance house Macquarie not only serves as investment advice but a useful guide on who to use (and who not to use) when reinsuring the old jam jar,
“Already in 1Q 2016, esure grew premiums by 15.5% and Hastings by 29%,” Macquarie notes. Meanwhile, Direct Line Insurance Group PLC (LON:DLG) and Admiral Group PLC (LON:ADM) are both defending market share.
Both esure Group PLC (LON:ESUR) and Hastings Group Holdings PLC (LON:HSTG) have published ambitious targets for premium growth, but with the chase for growth comes the increased risk of getting the pricing wrong, and UK customers are extremely price sensitive in this price comparison web site age.
Of the two, Macquarie prefers esure to Hastings based on a strong capital position and more attractive valuation, but its preference is lukewarm; the shares are only accorded a neutral rating (price target: 273p), while Hastings is rated 'under-perform' with a price target of 148p.
As for Direct Line and Admiral, it prefers Direct Line (neutral, price target of 335p) based on its strong capital position and on valuation grounds.
Admiral is expected to under-perform. The target price is 1,510p.
Elsewhere in the insurance sector, or assurance if you want to be pedantic (because no one can insure against dying), RBC Capital Markets has lopped 20p off its price target for Standard Life PLC (LON:SL.) to 300p.
It fears the pension plans specialist's flagship product, GARS, has seen slowing net inflows in the first quarter, and may even have seen a monthly outflow for the first time ever in April.
“We lower the multiple we apply to earnings due to lower expected net inflows from high margin GARS,” the broker said.
A lot of Britons regard their house as a surrogate pension pot, of course, and continued demand for housing might explain why Taylor Wimpey PLC (LON:TW) was able to announce a special £300mln dividend at its analyst and investor day today, to be paid in July 2017. That's in addition to the £300mln of special divis to be paid in July of this year.
Liberum took note of this and the increase in margin targets and said it now sees little downside, upgrading the stock to 'hold' from 'sell' in the process.
Financial experts do not always get it right, of course, and Leigh Wilson, chairman of Caledonia Mining Corporation (LON:CMCL, TSE:CAL) recently found himself in the embarrassing position of learning his shares in the company had been sold by his financial advisor.
Wilson only found out last week his entire stake of 75,200 shares was sold at the end of February for 63 cents each.
He has now restored his interest through the purchase of 75,000 shares, but the share price has recovered strongly since the end of February and he is around £19,000 out of pocket as a result.
“But never mind, we expect the shares to rise from here (as we believe production and costs are likely to improve at the Blanket mine over the course of 2016), and indeed, the chairman’s re-instatement of his holding at the current price could be seen as a vote of his confidence in Caledonia’s prospects,” notes Yuen Low of Shore Capital, possibly while whistling Monty Python's “Always Look On The Bright Side of Life”..
“Nonetheless, we would not be surprised to hear that he has changed his fund manager…” Low concludes.