Broker tips: RSA, Randgold Resources, Anglo American

17th Feb 2014 14:10

Gold miner Randgold Resources' latest full year results showed a decrease in earnings per share when compared to the year ago period. Management, however, was nevertheless able to compensate for the falling gold price via increased output, those same figires showed.That trend looked set to continue over the coming 12 months, with a step change in production expected by broker Numis. The firm saw production coming in at between 1.13-1.2m ounces at a cash cost of between $650 to $700/oz (Numis: 1.19Moz at $683/oz).Exploration targets looked "very good" and the likelihood of improvements in mine plans looked high. In that regard, the broker referenced "spectacular hits" at the company's Gounkoto mine and the growing number of prospects at Kibali. Capital expenditure was expected to peak in the first half of 2014, which might place some strain on the balance sheet. Yet given current buoyant gold prices and some release of working capital a dip into the debt facility no longer seemed likely. In fact, "substantive cash generation" was seen, as well as the chance of dividend upgrades in 2015.Numis retained Randgold Resources as its 'top pick' in the sector while hiking its target price on the shares to £55 from £50 previously.Hot on the heels of market reports regarding RSA's recapitalisation plans, Canaccord Genuity pointed out to clients the advantages of a share placement versus a rights issue. Namely, while a placing does not give existing shareholders any rights it can be done much more quickly and typically at a much smaller discount to the existing price. That meant a smaller dilution for existing shareholders.A share placement usually implies a discount of between 5-10%, instead of the 35% typically seen in a rights issue. Furthermore, RSA might opt to raise only £350m via that channel, those same reports had indicated, considerably less than the £500m to £1bn which Canaccord had envisioned. That amount could be supplemented by asset sales, a dividend cut (although that was not certain) and more extensive reinsurance.In line with the above, Canaccord raised its view on the stock to 'hold' and lifted its target price to 95p from 85p. "A 10% placing at a 5% discount would be approximately 9% dilutive before the impact of disposals and/or increased reinsurance costs, but we think would be well received by shareholders, who will also likely look to back the new Chief Executive Officer Stephen Hester," the broker concluded. New management's efforts to restructure Anglo American are starting to bear fruit.Thus, there are indications of improved operational performance at the company and a major restructuring of management is underway throughout the organisation, analysts at Credit Suisse wrote on Monday. As a result, the above analysts now had greater confidence in the company's targets for returns. They also saw an increased possibility for major divestments. Following its latest full-year results and more specifically the second half figures, they believed that the company's 15% target for 2016's return on capital employed (ROCE), while ambitious, was achievable.In fact, over the three years to the end of 2016 they estimated that earnings before interest and taxes (EBIT) would expand by 36%, with an 'upside' case of 58% if management delivered just half of the targeted $2.5bn in efficiencies. Platinum and De Beers remained the most obvious candidates for divestment, albeit most likely towards 2015 rather than next year. For all of the above reasons the Swiss broker raised its recommendation on the shares to 'outperform' from 'neutral' and their price target to 1,900p from 1,650p. The latter was the average of their forecast for the company's 2016 price-to-earnings multiple, of 20, and their sum-of-the-parts valuation of £20 per share.AB