Broker tips: Glencore, Amlin, United Utilities

8th Sep 2015 16:00

(ShareCast News) - JPMorgan Cazenove upgraded Glencore to 'neutral' from 'underweight' and lifted its price target to 150p from 130p.It said the miner's debt-reduction measures announced on Monday broadly address concerns over the sustainability of the investment grade credit rating.The bank now estimates a more modest shortfall of around $3bn against S&P's 'BBB' metrics which would be eliminated with a 2.5% increase in commodity prices, although any downward move in spot prices would see pressure re-emerge.Last Thursday, ratings agency Standard & Poor's cut its outlook on Glencore to 'negative' from 'stable' as it downgraded its forecasts for metals on the back of uncertainty over China, but kept its corporate rating at 'BBB'.JPM said a number of the initiatives outlined on Monday, including working capital reduction and reducing long-term receivables, were already captured in the bank's forecasts.It estimated a $4.7bn improvement against its previous net debt forecast, or around $5.6bn on a constant price basis, driven by the proposed and underwritten $2.5bn equity raising and $2.0bn of targeted asset sales. RBC Capital Markets upgraded Amlin to 'sector perform' from 'underperform' and raised its price target to 675p from 435p on news the insurer has agreed to be bought by Japan's Mitsui Sumitomo Insurance Company for £3.47bn.RBC said: "The recommended cash offer for Amlin by Mitsui Sumitomo represents strong value for shareholders, in our view, at the highest takeout multiple seen in the sector in recent times."The Canadian bank said it doesn't see any obstacles to the deal going through as it's backed by some of Amlin's largest shareholders.It noted that Mitsui Sumitomo has received irrevocable undertakings to vote or procure votes in favour of the deal representing 15.2% of Amlin's issued share capital.RBC lifted its 2015 earnings per share estimate by 7.6% and said it no longer sees any reason for the stock to underperform.It based its valuation on the recommended offer price of 670p rounded to the nearest 25p increment. Shares in United Utilities spiked after Societe Generale upgraded the stock to 'buy' from 'hold', keeping the target price unchanged at 940p.The bank said the recent fall in the share price has resulted in a bare 14% premium to march 2015 market value debt versus 16% for Pennon and 29% for Severn Trent, combined with a 4.6% dividend yield and 17% prospective 12-month total shareholder return.SocGen said that while the shares have outperformed the Eurofirst 300 by 7% through the general selloff over the past month, they have still underperformed the market by 4% and Severn Trent by 6% over the past year"Given that UU's enterprise value is only marginally greater than that of Severn Trent (£11.5bn versus £10.2bn), we think the low RCV premium could fuel conjecture of an infrastructure fund bid approach, particularly as UU possesses the strongest balance sheet of the three listed UK water companies," SocGen said.