Broker tips: Lonmin, FirstGroup, Sky

29th Jan 2016 12:13

(ShareCast News) - After a poor share price performance, HSBC has upgraded Lonmin from 'hold' to 'buy' but has cut its target price from 135p to 76p.The company's first quarter production report out on Thursday was mixed, according to the investment bank."Safety stoppages impeded production momentum at the key Generation 2 shafts, but the processing division performed well, drawing down ore and concentrate inventory in the period. Although mined platinum volumes of 158koz were 16% lower y-o-y, refined volumes climbed 23% to 171koz."HSBC said it has updated its valuation to reflect weaker platinum pricing from its Metals Quarterly report out earlier in January."We maintain our 33% discount to our DCF for Lonmin (at a 7.5% real discount rate ) to account for valuation risk given high gearing to key driver assumptions. We cut our target price to 76p from 135p. As this implies upside of 32%, we upgrade to 'buy' from 'hold'." RBC Capital Markets cut FirstGroup to 'underperform' from 'sector perform' and downgraded the price target to 85p from 110p following the company's profit warning on Thursday.It noted the group delivered another profit miss for full year 2015/16 from its third quarter update, adding that the warning has put the confidence building process back by at least 12-18 months."We now find reduced investor confidence that these goals will be met (even with helpful working day effects in School Bus), and thus that cash can be generated and dividend restored," the Canadian bank said.It pointed out that FirstGroup maintained its stance that the now extremely challenging profit margin growth goals can still be met, and that Q3 trading was a 'knock' rather than outlook-changing event."In our view, either the company needs to see relatively better demand, and/or a more benign labour cost outlook than its peers to meet this," said RBC.The bank said that while the shares look cheap on price-to-earnings, the increasing risk to earnings has prompted the rating downgrade.At 1000 GMT, FirstGroup shares were down 0.4% to 89.70p, having tumbled in the previous session after the transport operator cut operating profit guidance for the current financial year. Sky's 'add' rating and target price of 1,250p were kept unchanged by Numis after the broadcaster reported strong first half revenue growth.The company said in its interim results on Friday that statutory revenue for the six months to 31 December jumped 5% to £5.72bn from £5.44bn. It was driven by signing up 337,000 new customers in the second quarter - the company's highest UK and Ireland growth in 10 years - and sold 1.1m extra paid-for products.Operating profit for the period rose 12% to £747m, and the company declared a dividend of 12.6p per share.Earnings per share gained 10% to 29.7p, ahead of Numis expectations of 28.4p. Adjusted pre-tax profit also beat the broker's estimates of £620m at £649m."Looking forward, the group continues to push innovation including the SkyQ top-end box in the UK and product roll-out to Germany and Italy," according to Numis analyst Paul Richard."We retain our pre-tax profit/earnings per share forecasts of £1,340m/62p for June 2016, £1,345m/62p for 2017 (flat due to higher Premier League costs) and £1,560m/72p for 2018 (driven by Sky Europe synergies)."