Broker tips: Bovis Homes, Aldermore, miners

10th Nov 2016 14:35

(ShareCast News) - Numis reiterated an 'add' rating and a target price of 939p on Bovis Homes on Thursday after the housebuilder reported a full year trading update.The company said it expects to deliver record revenues in 2016 as the backdrop for UK housebuilding continues to be positive, with demand for new homes outpacing supply.Aside from the weeks immediately after the Brexit vote, sales in the year to date have followed a normal seasonal pattern and Bovis is on track to achieve over 5% growth in legal completion volume in the year.The average sales price for this year is expected to be around 10% ahead of 2015, driven by an improving mix and increased underlying market pricing."Bovis' update points to an in-line performance for 2016 and we maintain our estimates, which show circa 15% pre-tax profit growth for the year and a further improvement in return on capital employed," according to Numis analysts.However, the broker cut its earnings per share estimate of 2017 by 6% to reflect its forecast of slightly lower volume growth, due an expected fall in the number of year-end sales outlets. The new estimate still implies 7% EPS growth in 2017,boosted by 5% volume growth on better quality sales outlets with higher sales rates."Despite the reduction in estimates we continue to think that Bovis' shares are materially too cheap, trading on 0.94x P/NTAV, 6.8x PE and a yield of 6.2% for 2017 (which is 2.4x covered) - particularly given the high value embedded within the landbank and the strong fundamentals of the new build housing market," Numis said. RBC Capital Markets upped its stance on Aldermore to 'outperform' from 'sector perform' and lifted the price target to 210p from 190p after the challenger bank's third-quarter update.The bank pointed to strong growth in the quarter and reassuring guidance from the group for the full year 2016, with no changes in customer demand, a strong pipeline and a robust credit performance."We believe its positive outlook, combined with a diversified loan book, materially conservative forward consensus and double digit upside (11%) in a fully valued market, now warrants an outperform rating."Incorporating the company's Q3 results into its forecasts leads to upgrades to its earnings per share estimate, which rise 9%, 5% and 2% for 2016, 2017 and 2018, respectively.RBC said Aldermore's diversified loan book - 40% buy-to-let mortgages, 22% residential mortgages, 24% business finance loans and 14% SME loans - offers additional protection against downside risk.The Canadian bank said consensus upgrades were likely following Thursday's results. Shares in Rio Tinto and Glencore gained on Thursday as HSBC initiated its coverage of the mining stocks with a 'buy' rating.HSBC said Rio's assets are positioned mainly in the developed world and hence less risky, while Glencore's are more evenly spread across the globe.BHP Billiton's prospects are also in the development world but HSBC gave it a 'hold' rating, saying it does not offer as much value at its current share price as Glencore and Rio. Anglo American was also given a 'hold' rating based on its share price."BHP stands out on its relatively superior asset quality versus Anglo and Glencore, but our valuation appears full at the current share price," HSBC said.Looking at the sector as a whole, HSBC said the FTSE Mining is up 130% since its January 2016 low. The growth is driven by improved sentiment, moderately higher commodity prices, short covering and sterling depreciation.However, HSBC noted that the sector is still 50% below its peak in November 2010, which was boosted by the expectation of continued commodity demand in China.Chinese demand is now substantially below peak levels despite stimulus measures. HSBC believes this is unlikely to change anytime soon as its economy transitions from investment-led to consumer-driven growth."Today there is oversupply and overcapacity in most commodity markets and in some instances immense inventory levels that should persist over the medium term at current depletion rates," said HSBC."In essence, the over-investment in supply growth that dominated the past decade is plaguing today's commodity markets."However, the four miners HSBC has mentioned are cash flow generative and debt levels are falling rapidly. The bank believes this is a catalyst for further capital investment and/or an increase in returns to shareholders.