Broker tips: Antofagasta, Go-Ahead, SAB Miller

23rd May 2014 13:07

Things are looking down for Chile-focused miner Antofagasta, Investec says, due mainly to the strength in sterling, an expected increase in the tax rate and the uncertain near-term outlook for the price of copper. The effective tax rate is seen rising to 35% from fiscal year 2017 in comparison to 29% beforehand. In particular, the full 35% rate is expected to be applied to overseas cash returns. As a result the broker has cut its price target for the stock to 690p (from 715p). In parallel, the investment in capacity of recent years will probably see moderate oversupply over the next year or two, which may further undermine prices. To that one must add the near-term uncertainty about Chinese demand. Hence Investec´s decision to maintain its 'sell' recommendation.In fact, at spot copper prices their price target would drop to 643p and fiscal year 2014 earnings per share (EPS) to 76 cents. Nevertheless, a tighter market and price rises are seen post 2016. Furthermore, the present government in Chile is less mining friendly than the previous one. Lastly, companies in the sector face increasing challenges in the form of power and water constraints. These require investing in non-mining services so as to guarantee that operations can continue. "We view this as a hidden cost of operating in the country."The broker´s price target is based on a 50:50 mix of net present value (NPV) and a fiscal year 2015 eearnings per share multiple of 15.Train and bus group Go-Ahead has pulled off a major coup by winning the Thameslink rail super-franchise, according to Investec.The seven-year management contract will give the group certainty about its rail earnings for a number of years and is a major shareholder value-enhancing contract, Investec said.It also brings forward the day when investors might expect a dividend per share increase, the broker added."We lift our target price to 2630p from 2300p to reflect the value of the award to the group," Investec's John Lawson said in a note.Go-Ahead beat off competition from FirstGroup and Stagecoach for the enlarged Thameslink Southern Great Northern (TSGN) franchise.TSGN starts in September and will include the First Capital Connect routes from King's Cross and Moorgate to Cambridge and Peterborough, together with the Southern and Gatwick Express operations and parts of Southeastern, which runs trains between London and Kent.SABMiller´s latest annual results beat the analyst consensus by 1 per cent, but they were low quality as lower corporate costs and asset disposals accounted for much of that, Credit Suisse told clients in a note on Friday morning.Going forward the company expects to save $500m in costs. However, that will only add about 30 basis points (bps) per year to its margins. However, the firm still needs to raise its margins by another 45 basis points per annum to reach the double digit percentage rate of growth in earnings per share implied by its medium-term guidance per region. Unfortunately, the brewer´s track record in delivering on margin expansion is mixed, although in the past it has achieved superior top line growth,The key now to achieving the company´s targets is Europe. The region has been the biggest drag on margins in recent years (fiscal year 2011-2014 EBITA margins fell by 520bps), and therefore stabilisation in this region is key, which should be supported by forthcoming restructuring efforts. In the company´s favour, on the other hand, in terms of meeting its EPS targets, is a falling tax rate. Even so, the stock is trading on a 13% premium on its forward price-to-earnings (PE) multiple to European consumer staples (versus 8% historically). Despite all of the above Credit Suisse kept its neutral recommendation on the shares and raised its price target to 34 pounds from 31 beforehand, as it rolled forward its price targets. However, "with continued uncertainty in emerging markets (represent circa 70% of sales), we maintain a cautious stance in the near term for now," the broker added. AB