Broker tips: Aggreko, Balfour Beatty, Glencore

10th Aug 2015 13:06

(ShareCast News) - Temporary power provider Aggreko got a boost after Barclays upgraded the stock to 'overweight' from 'equalweight'.It said the majority of possible bad news has materialised, the revised strategy is sensible and this is likely to prove one of the lowest valuations relative to the market investors will experience across the economic cycle."In fact, our view is the degree of negative sentiment means growth doesn't even need to hit management's predictions of mid-single-digit revenue growth and 20% EBITA margins for the shares to offer upside," said the bank.Barclays said there remains some risk to earnings in the near term from direct exposure to oil and gas end markets and indirectly from customer sentiment linked to low commodity prices. In addition, questions over Power Projects in the longer term are likely to remain.There could also be execution risk on the changes being implemented as part of the new strategy, said the bank.Barclays cut its price target on the stock to 1,280p from 1,700p as the bank uses multiples below the long-term average which are more akin to the pre Power Projects era. Analysts at RBC Capital upped their rating for Balfour Beatty, and said the company was through the worst.RBC Capital moved the construction firm's rating to 'outperform' from 'sector perform' and lifted its price target to 300p from 200p.In a note RBC Capital analyst Olivia Peters said after seven profit warnings, RBC was turning positive."We upgrade Balfour Beatty to 'outperform' on the basis that we believe risk management and cost cutting will drive profitability," Peters said.Peters said while the issues at the UK business have been highlighted for a long time, most legacy contracts would end in 2016, and RBC would be surprised if the company issued another profit warning."The new management team is reviewing the business and although there is a risk that new problem contracts could emerge we believe that they can be contained," Peters said.RBC forecast Balfour Beatty's earnings before interest, tax and amortisation to improve by £273m between 2014-2017E, generating an EBITA margin of 2.4% 2017E. Investec cut Glencore to 'sell' from 'buy' as it revised equity target prices on a number of mining stocks following further weakness in the Chinese economy and downgrades to its commodity price deck."The increasing problems in China have caused us to reassess our commodity price outlook. Having started the year with metal price forecasts well below consensus for nickel and platinum group metals, we acknowledge we were not bearish enough," said Investec.It said mining shares have reflected further weakness in underlying commodities and appear set for a fifth straight year of underperformance relative to wider equity markets. It noted that the major miners have underperformed the FTSE 100 by an average of 25% year-to-date.Investec said earnings adjustments have meant downgrades for nearly all the companies under its coverage, in many cases leading to meaningful reductions in price targets.The brokerage downgraded Glencore to 'sell' and slashed its price target to 147p from 282p, but retained its 'hold' recommendation on Rio Tinto, BHP Billiton and Anglo American. It said the former two still have the balance sheet capacity to maintain what is now an attractive dividend yield, while the turnaround at the latter is well underway.On Glencore, it said: "We expect the company to take decisive action to restructure and adapt, but until such strategies are made known we have to assume status quo. The interims results expected on 19 August will give an update on the exact state of the business."Investec also cut its rating on Randgold Resources, to 'hold' from 'buy' and cut its price target to 3,872p from 4,971p, pointing to a weaker gold price outlook, although it said the company's balance sheet remains resilient.On the upside, the brokerage upgraded Ferrexpo to 'hold' from 'sell', noting that the company's earnings have been lifted by a dramatic drop in operating costs. It trimmed the price target to 57p from 58p."We retain our view that the sector is unlikely to recover anytime soon, especially as signals from China appear to be deteriorating," said Investec.