Broker tips: Kaz Minerals, Persimmon, Lonmin

18th Aug 2015 15:37

(ShareCast News) - Goldman Sachs has reiterated its 'sell' recommendation on KAZ Minerals as the copper-focused miner is expected to deliver disappointing first-half results on Thursday.Shares in KAZ fell 2.1% to 146.7p by 1140 BST on Tuesday, as Goldman kept its 12-month target price at 137p.Interim results from KAZ on 20 August are forecast to show a 52% half-on-half decline in EBITDA, mainly on the back of a 13% decrease in copper cathode output - revealed in a recent trading update - and 13% fall in copper prices, while gross cash costs have remained flat."We believe investors will focus on management comments regarding growth projects, especially the timing of Bozshakol commissioning given the fire reported at this asset last week."Goldman acknowledged that KAZ offered "structurally appealing production volume growth", with volume expected to triple by 2018, with the company looking well positioned at the lower end of the global copper cash cost curve according to the bank's analysis.However, GS has a bearish outlook for the copper price, pencilling in $4,725 per tonne in 2016, and so estimates KAZ's 2016-17 free cash flow will be insufficient to cover debt repayments under existing loan agreements."Hence, until we see a sustainable debt solution coupled with spotless execution on growth we stay cautious on the equity."Other possible upside that could see the rating altered would be higher-than-expected copper, zinc and gold prices, weaker forex, and projects being ahead of schedule and with capex below budget. Bank of America Merill Lynch has lifted its price target on Persimmon to 2,300p from 2,110p following the company's first-half results.The bank said 2015 has been a good trading period for the company and despite high land investment, has resulted in a very strong net cash position."This, along with solid fundamentals and strong cash flow, gives us confidence that the 2015 and 2017 10p dividends could be revised materially upwards," it said.It said Persimmon currently sees an attractive land market and is investing heavily in it, but lower investment could allow the company to potentially double its dividend stream if it chose to do so.Merill said the stock remains attractive, trading on an estimated 2016 yield of 5.2%. It said that while this is a premium to the sector, it is sustainable given the quality of the cash flow."Persimmon's track record of being the only UK housebuilder that traded through the early 1990s UK housing recession as continuously profitable, as well as its current landbank and net cash position, make this the most defensive UK housebuilder, in our view."Merrill maintained its 'buy' rating on the stock. Shares in miner Lonmin were under pressure after RBC Capital Markets slashed its price target on the stock to 35p from 110p as it adjusts its model to reflect retrenchment costs in full-year 2015 and lower opex.It said that given the challenging outlook for platinum group metals and balance sheet concerns, the market is valuing Lonmin on a short-term basis using spot prices.Weak PGM prices present a risk to free cash flow generation despite plans to cut headcount and costs, said RBC, adding that Lonmin's debt falls due in the first half of 2016 and the company could struggle to refinance.It said the miner's operations are labour-intensive and relatively high cost and maintaining its production profile of around 750,000 ounces of refined platinum requires an annual capital spend of around $250m at current prices, which pushes the company into negative free cash flow generation."Overall we see balance sheet concerns persisting until Lonmin addresses its tight liquidity position or we see a material rally in PGM prices," said the Canadian bank.Potential catalysts for the shares include better PGM prices, debt refinancing and successful wage negotiations.The bank maintained its 'underperform' rating on the stock.