Analysts at RBC Capital kept their recommendation for shares of BP at ‘sector perform’ following the oil major’s latest update.
In their opinion, the negative share price reaction was largely due to the company’s decision to slow-down its share buybacks “buyback, which suggests a cau๎ous approach in the face of an improving macro environment.”
Nevertheless, despite the impossibility of forecasting certain factors, such as working capital, they continued to expect underlying improvement in BP’s free cash flow and hence a higher buyback in 2022.
RBC also stood by its 425.0p target price on BP.
Analysts at Liberum upgraded their recommendation for shares of Anglo American from ‘hold’ to ‘buy’, describing it as the sole “pro-growth major” in its space.
“Capex increases are coming through but have been from “green upgrades”. The constraints on supply are still very much there and most have been too slow to act,” they told clients.
Overall, companies in the sector were “playing it safe”, prioritising deleveraging and capital returns, even as so-called Environmental, Social and Governance obligations required a “ballooning” share of capital.
On a trailing three-year average basis, Anglo’s capital expenditures were running at about 1.8 times’ its depreciation, relative to an average of 1.2 times for Diversified Mining, they pointed out.
In particular, the company was said to be targeting “significant” investment in copper, a metal that stood to benefit from rising demand for use in electric vehicles, as well as in polyhalite at the Woodsmith project, while spending $200-500m on improving recoveries, for environmental benefits.
Nonetheless, the sector as a whole was looking at a “sharp” slowdown in Chinese industry and real estate, while coming off the reflation highs in the rest of the world, Liberum said.
The analysts were also expecting commodity prices to fall, despite constraints on supply.
So, with negative sector earnings momentum, shares would struggle to hold current levels without significant equity catalysts, they concluded.
They also pointed out US infrastructure’s “long history of disappointment” and the fact that the so-called Chinese “credit impulse” was now “strongly negative”.
ESG obligations made “the traditional hunt for long-life, low-cost assets even more difficult to engage” they added.
“Limited ability for miners to ‘green up’ existing operations, such as Rio Tinto’s iron ore. Also, green investment needs an effective global carbon price to be non-dilutive,” they added.
Finally, they commented on how the majors in the sector were in the process of re-evaluating geographies with high geopolitical potential but historically trickier socio-political environments.
Shore Capital reinstated coverage of fast-fashion retailer Boohoo with a ‘buy’ rating on Wednesday, having previously had a long-standing ‘sell’ on the shares, citing “a good entry point” at historical lows.
The broker said it’s’ been quite a ride for Boohoo shareholders over the past 18 months, with the shares now trading on a CY22F price-to-earnings multiple of 22x and an EV/EBITDA multiple of 13x, which is a 55% discount to last year’s high.
“We think this is an attractive entry point to one of the fastest-growing retailers in the UK. Boohoo is a consummate own-label brand operator with a strong balance sheet and, in seeking to be a platform, it is a stronger player than peers thanks to its proprietary nature,” it said.
Shore said that while volatility will undoubtedly persist until supply chain issues normalise, increased marketing spend, faster delivery times and extension into mid-market brands will be key growth drivers for the retailer.
“ESG is now an opportunity for the fast-fashion retailer, as is the underappreciated transformative Debenhams acquisition, having turned Boohoo into a leading player in the UK’s online prestige beauty market,” it said.
“With the shares now down to 2017 average levels, we see this as a perfect entry opportunity into the stock.”
Shore set a fair value of 345p.
