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Broker tips: Intercontinental Hotels Group, Beazley, Anglo American

Analysts at Berenberg upgraded Holiday Inn owner Intercontinental Hotels Group from ‘hold’ to ‘buy’ on Friday following a better-than-expected first-half performance.
Berenberg stated that IHG’s strong first-half showing and the appearance of “supportive” recovery trends meant the company was now “well positioned” to beat current consensus expectations in 2021.

“The first half of 2021 saw IHG come in well ahead of consensus and beat our above-consensus expectations for underlying operating profit. While consensus has raised expectations for the full year, we believe that with recent recovery trends, particularly in the Americas and Greater China, IHG will deliver a better-than-expected full-year result,” said the analysts.

The German bank also said its analysis concluded that concerns over IHG’s future net unit growth were “misplaced” and highlighted that it believes the group can return to room growth of “at least 4%” moving forward.

“When we combine these factors with a valuation that looks compelling, we move our recommendation from ‘hold’ to ‘buy’ and increase our price target to 5,400.0p from 4,500.0p,” said Berenberg.

Analysts at ShoreCap resumed coverage of Beazley with a ‘buy’ recommendation, arguing that the insurer was “best placed” to benefit from the rating cycle across its cyber and liability lines – where rate momentum was accelerating.

“We expect management to grow the top line through predominately aggressive rate increases to protect its profitability from the onset of increased ransomware and social inflation costs,” they added.

Furthermore, they judged the business to be “well capitalised” following an equity issuance in 2020 and the active use of reinsurance.

The shift into casualty and away from property catastrophe had also lower the volatility of its earnings, even as it maintained a sector-leading return on equity.

“We forecast mid to high teen RoE as it recovers from recent Covid-19 losses, however the stock continues to trade in line with its own cross-cycle average, despite double-digit rate momentum on two-thirds of its book,” said ShoreCap, which also slapped the stock with 530.0p target price.

Analysts at Jefferies reiterated their ‘buy’ recommendation for shares of Anglo American following investor meetings with the miner’s boss, Mark Cutifani, its finance director, Stephen Pearce, and its head of investor relations, Paul Galloway.

“The overall message from Anglo is that the company is operating well and is on track to deliver its key growth projects on time,” they said.

Despite recent headwinds from a collapse in iron ore and precious group metals’ prices and a weaker economy in China, Jeffferies expected the shares would recover through 2022.

Jeff also stood by its 4,000.0p target price on the stock, implying 40% potential upside on a 12-month horizon.

Jefferies also expects Cutifani’s replacement to take over in the front half of 2022 if he was an internal pick, or by the end of 2022 if he was an external one.

“Lack of clarity on succession is a modest overhang on these shares, in our view,” they added.

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