Broker tips: BHP, Thomas Cook and Glencore

28th Nov 2011 11:17

Analysts at Nomura have this morning published a research note highlighting how, in their opinion, fear has provoked a divergence between investor sentiment and mining valuation fundamentals.Thus, they argue that mining equities are already pricing in further falls (in commodity prices) and that volatility in those same commodity prices has been due to eurozone debt and Chinese slowdown concerns, but that prices have not collapsed.Their balance sheets, however, have now been repaired and there are "growth catalysts on the horizon."Nomura also states that, "iron ore and copper remain structurally attractive in the short term," yet adds that, "challenges remain with regard to delivery and the market continues to underestimate supply side risks."Hence the decision by Nomura to resume coverage on BHP Billiton and Rio Tinto at buy. The broker has raised its price target on BHP (to 2,500p from 2,400p), but lowered those for Xstrata (to 1500p from 2,200p), ENRC (to 750p from 950p) and Glencore (to 450p from 550p).In a just issued research note analysts at Credit Suisse describe the terms of the new financing arrangement which Thomas Cook has put in place with its creditor banks. The bank considers that said arrangements are a 'positive', but cautions that, "clarity on the group's financial outlook remains very uncertain," adding that there are still several sources of medium-term uncertainty.Against that backdrop, Credit Suisse states that it will be watching the company´s 2011 fiscal year results, due out on the week of the 12th of December, for details on recent trading (with bookings reported to be down 30% since last week) and the company´s restructuring plans. Another medium-term source of uncertainty regarding which these analysts seek greater clarity are the group´s plans for asset sales.The above broker has also issued a research note today on Glencore. In particular, they write that, "The emphasis was very much on the physical, long term nature of the business set against market perceptions that the business is driven more by high risk price speculation." In their opinion, the above misperception seems to be the result of a lack of disclosure around the marketing business which, contrary to what some believe in the markets, are "high quality (if misunderstood) and a key value driver over the medium term."Thus, Credit Suisse emphasizes that the 'value' in the marketing division is not a function of low volatility but of sustainable returns, thanks to an "unrivalled business model (scale and market share), with sustainable high returns and a low weighted average cost of capital." AB