Broker tips: William Hill, UK Mail, Rio Tinto

7th Aug 2015 13:48

(ShareCast News) - Nomura on Friday reiterated its 'buy' rating on William Hill, citing the company's "strong, differentiated online presence".The gambling group reported a 35% fall in pre-tax profit to £78.7m and flat net revenue for the six months to 1 July as it battled through a period of major regulatory and taxation disruption.Nomura analysts Richard Stuber, Tim Barrett and Rebecca Langley said earnings before interest and tax of £156m, down 12% year-on-year, were broadly in line with their £151m estimate.The analysts noted that the company's shares have outperformed the FTSE All-share by 8% in the year to date, as the likelihood of further anti-gambling regulation was lowered following the Conservative Party's win in the general election.They also said William Hill's wide regulated geographical exposure dilutes the impact of any single regulator, with 20% of its revenues from outside the UK."For these reasons, and its attractive valuation (2015E PER of 17.5x, EV/EBITDA of 11.4x and 3.7% dividend), we reiterate our buy rating for William Hill." Investec has downgraded UK Mail Group to 'add' from 'buy' after the postal services company issued a profit warning.UK Mail said it expects its full-year will be materially below current market forecasts, with profit before tax now predicted to be in the range of £10m to £12m.The profit warning comes as the company has suffered hitches with its new fully automated facility in Coventry which is struggling to cope with many of the parcel sizes, which were said to be "incompatible" with its new automated sorting equipment."The rate of parcel volume growth has slowed with a negative parcel revenue mix and a greater proportion of parcels volume than expected is incompatible with the new sortation equipment resulting in higher costs and lower asset utilisation," Investec analysts noted."Consequently, we cut our forecasts, reduce our target Price to 485p (from 535p) and downgrade to add."Investec has cut its parcels revenue and operating profit forecasts, "assuming a slightly lower revenue per parcel due to the negative mix and higher operating costs".The analysts' parcel volume forecast has been reduced from 5% to 3% for the full-year 2016. The parcels revenue projection has been slashed 2.1% in full-year 2016 and 2.1% in full-year 2017. Macquarie upgraded Rio Tinto to 'neutral' from 'outperform' and lifted the price target to 3,300p from 3,200p following the company's first-half numbers.It said the results were strong, with underlying earnings 10% better than Macquarie expected, adding that the reduced capital expenditure profile has significantly improved the company's ability to cover its dividend from cash flow.It said cash generation was impressive, with significantly lower capital expenditure resulting in free cash flow generation of $2.0bn, which was 38% higher than Macquarie had anticipated."We still see a shortfall in calendar year 2015, but beyond this year forecast cash flow generation is sufficient to maintain a steadily growing dividend," said the bank.Macquarie said the upgrade brings its rating for Rio in line with BHP Billiton. The bank currently sees total shareholder returns of 30% for BHP and 36% for Rio."Assessing forward earnings multiples Rio looks cheaper than BHP, but BHP does offer a higher yield , which we believe reflects concerns over the company's ability to sustain its progressive dividend," it said.It added that it still prefers BHP's more diversified asset base over Rio's greater reliance on iron-ore and aluminium, however the gap between the two has narrowed, driven by Rio's impressive operating cost and capital reduction programmes.