Broker tips: Antofagasta, Spirax-Sarco, Smith & Nephew

by | Aug 10, 2023

(Sharecast News) – Canaccord Genuity has maintained its ‘buy’ recommendation on miner Antofagasta despite the firm cutting its output forecasts on Thursday.
The Chile-based copper mining group reported that first-half revenues rose 14% to $2.89bn, while EBITDA rose by a lesser 7.5% to $1.33bn due to higher operating costs. As such the EBITDA margin fell to 46.1% from 49% the year before.

Copper output rose 10% to 295.5 thousand tonnes (kt) after a 23.9% increase in throughput at Los Pelambres – its sulphide deposit in the Coquimbo Region.

However, the firm cut its full-year production guidance slightly to 640-670kt (previously 670-710kt), citing the rescheduling of completion activities at the desalination plant and concentrator expansion at Los Pelambres and the reduced availability of water in the first half of the year.

“The outlook given by management remains mostly in line with previous guidance for production, net cash costs and capex. However, the company has adjusted its gross cash cost guidance up to US$2.30/lb (from US$2.20/lb) due to the lower production guidance,” Canaccord Genuity wrote in a research report Thursday morning.

“Our main focus remains on higher volumes from Los Pelambres due to come in 4Q23 where the desalination plant is nearing the end of commissioning and the concentrator expansion is on track to complete commissioning in 2H23.”

The broker left its 1,900p target price unchanged for the stock, which was trading 1.3% higher at 1,628p.

Shore Capital has reiterated its ‘hold’ stance on shares of Spirax-Sarco after the company disappointed the market with its first-half results, saying the stock is “full valued” for now.

The engineering group, which specialises in thermal energy management and niche pumping equipment, said adjusted operating profits were down 13% organically at £171.7m, below the company-compiled consensus estimate of £176m.

It also forecast that full-year sales would grow between 0% and 4% in 2023, which Shore Capital predicts will prompt a 5% downgrade to current consensus estimates for adjusted operating profits.

“The weakness in Watson-Marlow sales from the BioPharma sector was anticipated but we believe the extent of the downgraded guidance is greater than both the buy side’s and the sell side’s expectations,” Shore Capital wrote in a research report on Thursday.

In terms of the share price, the broker explained that the stocks trading a 29 times forward earnings as of Wednesday’s closing price.

“We consider the shares to be fully valued, although they have previously traded on a higher rating. They currently trade at a lower than usual premium to the sector average. However, the sector premium is considerably higher than average versus other sectors (>30% versus a 15-20% average premium).”

The stock was trading 5.5% lower at 10,245p.

Berenberg has kept its ‘buy’ rating on Smith & Nephew after the medical equipment manufacturer’s first-half results last week, giving an optimistic take on its current turnaround strategy.

The company reported 7.3% in underlying revenue growth year-on-year in the first half, with sales coming in at $2.73bn, offset by a weak margin performance. It lifted its full-year underlying growth guidance from 5-6% to 6-7% but kept trading profit margin forecasts unchanged at “at least 17.5”.

Last summer, Smith & Nephew announced its ’12-Point Plan’ to fundamentally change the way it operates, focused on fixing the foundations of its Orthopaedics division, improving productivity and accelerating growth in the Advanced Wound Management and Sports Medicine & ENT business units.

“With the company now one year into management’s 12-point improvement plan, we think the business needs to move from qualitative commentary to showing tangible evidence of delivery in its numbers,” said Shore Capital analysts in a research note.

“If the company can do this, given its depressed valuation, we think the shares should re-rate strongly.”

The share price, down 0.6% at 1,115.27p on Thursday morning, is right back where it was at the start of the year, having fallen 15% since hitting a high of 1,316.75p in April.

Shore Capital reiterated a ‘buy’ with a price target of 1,500p.

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