Analysts at Berenberg raised their target price on mining giant BHP from 2,200.0p to 2,300.0p on Tuesday after the firm’s interim results came in better than expectations.
Berenberg said BHP’s recent first-half results surprised to the upside in terms of free cash flow generation, mainly down to tax and working capital, and noted its dividend of $1.50 per share came in ahead of both consensus and its expectation of $1.33.
The German bank said management’s commentary on the two subsequent earnings calls pointed to “good cost control” and the ability to fight against cost inflation and while BHP is unlikely to be immune from cost inflation, it appears that productivity has played a part in keeping unit costs contained.
Capex, on the other hand, appears to be moving “structurally higher” from an industry standpoint, driven by increased decarbonisation spend, with BHP guiding to the upper end of its $2.0bn-4.0bn range to 2030, automation/efficiencies and stripping, which Berenberg expects to increase as mines become more mature.
“We also think that after a period of reduced capex investment in assets due to cost reduction programmes, which is more of an industry-specific theme than a BHP-specific one, maintenance capex will be structurally higher into the medium term (eg Anglo American Platinum is a good case in point here). This has scope to weigh on free cash flow and dividends should there be a tempering of commodity prices,” said the analysts, as they reiterated their ‘hold’ rating on the stock.
Analysts at Canaccord Genuity lowered their target price on market research company System1 from 405.0p to 385.0p on Tuesday and said its recent legacy miss re-emphasised that “the future is data”.
Canaccord Genuity said a profit warning from System1 was disappointing as far as the group’s short-term outlook was concerned, it also highlighted “the lumpiness and reducing visibility” of more traditional bespoke consultancy project sales.
The Canadian bank noted that anticipated fourth-quarter budgets from large US customers had not materialised as a result of refocused portfolios and with only six weeks of System1’s financial year remaining, the firm was forced to reduce its revenue guidance by over £1.0m and adjusted pre-tax profit expectations by roughly £1.0m.
“We reduce our FY22E EPS by 57% accordingly and prudently lower our FY23E expectations by 9%, said Canaccord, which has a ‘hold’ rating on the stock. “However, we believe the narrative surrounding consultancy attrition has been well flagged and the future investment case remains very much focussed on growth in high margin automated data products.”
Canaccord also pointed out that client transition to these products happened at “a much faster pace” than had been imagined, driving a rapid acceleration in run-rate revenues, and noted that System1 had won 200 new data customers since launching in April 2020.
“As a result data contributed £7.4m of revenues in the nine months to 31 December 2021 (39% of group) with new customers providing £4.4m of 60% data sales, and we are encouraged that the group continues to see new high margin, fast growth data products perform well,” said the analysts.
