Broker tips: Anglo American, Talvivaara, Rathbone

4th Nov 2010 13:17

Panmure Gordon sees South Africa as an increasingly less attractive mining destination and no longer rates Anglo American shares as worth buying.According to the broker's calculations, the $237m cost savings achieved by Anglo American from asset optimisation have been outweighed by the mining giant's costs for the first half.Analyst Alison Turner estimates that South African "cost pressures, new mining royalties, compliance with the mining charter and production lost to labour and safety incidents cost Anglo American $391m" in the first half of 2010.Also, the broker sees decreasing security of tenure over mineral rights, the growing threat of nationalisation, combined with a stubbornly strong rand as reasons not to buy at Anglo.Despite rising political risk and inflationary pressures, the rand remains strong "with investors chasing yield".The broker has adjusted its discounted cash flow valuation of the group's South African operations by 14%, giving a "risk-adjusted valuation" of 2,756p for Anglo's shares, down from 3,250p previously. The stock has been downgraded from a "buy" to a "hold".Broker finnCap doesn't see value in the short term for Talvivaara Mining and believes the shares of the nickel and zinc miner "are overdue a reality check".The group surpassed the broker's previous price target of 552p last week and has "significantly outperformed" the market since finnCap's last research note in August.However, analyst Joe Lunn believes that its strong share price is attributed to a strengthening nickel price and an extension to 'life of mine' time, which has offset the negative effect of the group announcing two lots of production downgrades this year."While it is possible that the market is looking ahead to a higher production run rate in years to come", the broker is "unable to find further value in the short term".According to the broker's spreadsheet model, the market is pricing in "by-product cobalt and copper production credits which have yet to be commercially proven and a long term 50,000 ton production run rate," but Lunn thinks these factors will only come into play "from 2012 at the earliest."Lunn advises investors to take profits ahead of next week's third quarter results as significant commissioning issues outweigh the potential for higher nickel prices in Euro terms to compensate for possible production shortfalls.Despite the "sell" recommendation the broker remains a long-term supporter of the mining group. The target price has been cut to 458p from 552p previously.A sharp rise in equity markets has seen KBC Peel Hunt upgrade forecasts for Rathbone Brothers, following an upbeat interim statement from the investment management firm Thursday.Analyst Stuart Duncan highlighted an annualised organic growth of 5.7% over the third quarter for the firm, which specialises in the management of investment portfolios for private clients. This is compared with 4% in the second quarter, reflecting more confidence from private investors."Assets under management grew by 9% to stand at £14.5bn at 30 September," Duncan said. "Of this, £13.6bn is in the core Investment Management division, £951m in the Unit Trust business."Revenues were 11% higher than a year ago at £32.1m, and increased by 7% for the nine month period to £94.1m, "with the main movement being a 55% reduction in interest income"."The statement strikes an almost customary cautious outlook for 2011 but the business remains in a strong position with the private client wealth management space."Due to a sharp rise over the quarter in the equity market, the broker has upgraded full year expectations of pre-tax profit to around £36m from its previous forecast of £32.7m, and the earnings per share forecast is increased to 58p from 53.3p previously, reflecting a 9% increase.These upgrades are due to "higher market levels and a more positive backdrop than at the start of the third quarter when equity markets were circa 16% lower", Duncan said.The broker has upgraded Rathbone's target price to 910p from 745p, and moves to a 'hold' rating from 'sell'.