Broker tips: Centamin, Ladbrokes Coral, Amec Foster Wheeler

1st Nov 2016 12:25

(ShareCast News) - Numis on Tuesday lowered its recommendation on Centamin to 'hold' from 'add' and left its target price at 170p following the recent rally in the share price.Centamin on Monday said it expects 2016 gold production to be towards the upper end of its guidance of between 520,000 and 540,000 ounces as it reported a 41% increase in output in the third quarter to 148,674 ounces.The miner reported earnings before interest, tax, depreciation and amortisation of $122m compared to $31m a year ago. Numis had expected EBIDTA of $109m.Centamin finished the period with no debt and $388m of cash. "Centamin is well positioned to either increase the level of distribution or to fund the development of its exploration assets in West Africa without new external funds," Numis said.Numis also noted that Centamin has started with the development of a new decline at the Sukari mine, Cleopatra, which the broker believes will increase operational flexibility.It could also account for production of up to 180,000 ounces per year, assuming similar grades and recoveries like other areas at Sukari, Numis added. "Ultimately management hope to be able to mine up to 1m tonnes per year from this area of Sukari." As Ladbrokes Coral completed its merger and began its first day of trading as a combined entity on Tuesday, analysts gave their initial takes on the stock, which will trade under the ticker LCL.Morgan Stanley put the bookmaking group, which begins life with a market cap of close to £2.6bn, on a 'overweight' rating and set a price target of 190p, with expectations that the merged business will deliver a compound annual growth rate in earnings per share between 2017 and 2019 of 23% driven by online growth, merger synergies and strong cash generation.Ladbrokes Coral has guided to synergies of around £65m from the merger, while the Ladbrokes business has been improving thanks to strategic changes begun last year."We benchmark to its closest peer William Hill and see higher growth, similar UK retail exposure, a larger online business and a significant valuation discount," Morgan Stanley said, citing significant hidden value in online and overseas revenues.The investment bank sees upside risks to the £65m synergy target, margin upside in online, strong cash generation, and rising returns to shareholders but warns of a potential £100m bear case hit if the UK government clamps down on fixed-odds betting terminals, with other regulatory risks in Australia and Italy.Shore Capital said the base case scenario is for group earnings before interest, tax, depreciation and amortisation (EBITDA) to build from pro-forma £375m and earnings per share of 10p towards £500m and EPS of 15p by 2018.But, as it slapped a 'buy' recommendation on the shares, ShoreCap sees a bull case scenario where the enlarged business eliminates gap with peers in cost and revenue per shop and improves its online margin towards 30%, with EBITDA building to circa £650m and EPS of 23p."Our analysis suggests that Ladbrokes Coral is worth circa 180p per share based on our central case assumptions rising to over 220p per share on our bull case assumptions," the broker said.At opening price of 134p Ladbrokes Coral trades on 8.0 times 2017 forecast EBITDA, with an implied valuation of 3.0 times EBITDA."We see significant upside from here on all but draconian restrictions on machine play," ShoreCap's analysts concluded. Amec Foster Wheeler was under the cosh on Tuesday as Barclays downgraded the stock to 'equalweight' from 'overweight' and cut the price target by 17% to 500p.Barclays pointed out that the group is currently undergoing a much deeper introspection than previously expected, in a market worse than expected, with the process not likely to be finalised until March 2017."This process will include divestments and likely investments, not only in the business systems and processes, but also potentially inorganically. As such, despite the company articulation of a GB£100m cost saving programme, a degree of uncertainty has been added to the investment case."The bank said the level of investment needed is unclear and the capital structure needed has been called into question.Barclays gave Amec credit for releasing an update in October rather than "muddling to an unsatisfactory update" in November, as planned."By laying itself bare, it opened itself to criticism of over promising too early, a fair comment in our opinion. That said, there was no clarity on the potential scope of the company post the reorganisation at the August update as well, yet the market accepted it."Shares in the oil services company tumbled last week after it said it expected further declines in the oil and gas market and postponed its planned capital markets day as it needs more time to come up with a strategy."The issue is with potential balance sheet actions now. Potentially needed is that the restructuring is not confined to organic cash flows. Hence, what investors will pay for exposure to the still uncertain future is now harder to define. As such, like the company, we feel it prudent to step back," Barclays said.However, it said that in the longer term, the investments and changes the company is making are likely to be for the good.