Broker tips: Hochschild, FeverTree, Quilter, Strix

by | Jul 22, 2022

Analysts at Berenberg downgraded mining group Hochschild from ‘buy’ to ‘hold’ on Friday, citing operational risks.
Berenberg stated that Hochschild had seen lower-than-expected grades at its Pallancata asset, as well as a lower silver price, leading the group to update its plan for the mine in 2022. Hochschild also noted that it is considering all options with regards to future ore production.

While Hochschild’s decision to reiterate guidance, Berenberg expects that Pallancata’s weakness will be offset by improved production elsewhere, it noted that management had cautioned that unless the exploration team at the site can discover “meaningful ounces” to be added to the mine’s plan, it will likely be placed on temporary care and maintenance.

“Consensus expects the mine to stop operating in FY 2024, alongside cost reductions; we believe this may be challenging, implying risk to the downside to current consensus forecasts. Without Pallancata in our model, our FY23 production estimates fall by 11% to 22Moz (SE) and our revenue estimates by 9% due to the lower production,” said the analysts, who also lowered their target price on the stock from 150.0p to 100.0p.

However, the German bank stated that improved costs across Hochschild’s portfolio had led to an improvement in underlying earnings of roughly 1%.

RBC Capital Markets downgraded tonic maker FeverTree on Friday to ‘underperform’ from ‘sector perform’ and slashed its price target on the stock to 700.0p from 1,600.0p.

“Headwinds are accumulating against the top line and our industry contracts are increasingly bearish on the US,” said RBC. “In addition, we no longer have any confidence margins will improve in the near term.”

The Canadian bank also said FeverTree’s 2021 margin was actually in line with other soft drink peers.

FeverTree shares tumbled last week after a profit warning, as it downgraded its underlying earnings guidance for the year to somewhere between £37.5m and £45m, down from previous guidance of £63.0m-66.0m.

JPMorgan Cazenove downgraded Quilter on Friday to ‘neutral’ from ‘overweight’ and cut its price target on the stock to 115.0p from 180.0p.

“We mark to market our model, reducing our 2022E/23E earnings per share by 16%/22%, mainly due to Quilter’s revenue sensitivity to assets under management levels,” JPM said.

JPM also lowered its 2022-23 net flow estimates by around 15%, saying it expects the current macro environment to reduce savings and slow down the onboarding of new advisers on the platform.

“Consistently with this view, Morningstar’s data suggest negative flow momentum at Quilter Investors, and The Investment Association reported weak flows in April and May,” noted JPM, which also placed the shares on ‘negative catalyst watch’ into the first-half results on 10 August.

“We see that the negative market impact on earnings, and the potentially disappointing net flows are not fully reflected in consensus with our EPS estimates sitting 10-20% below for ’22e-’23,” it added.

Canaccord Genuity downgraded kettle controls manufacturer Strix downgraded from ‘buy’ to ‘hold’ on Friday, stating headwinds were now “biting”.

Canaccord Genuity made the move after Strix announced that it now expects full-year adjusted profit after tax to be broadly in line with consensus estimates of £32.2m, despite a challenging first half that saw several big name brands pull out of Russia, resulting in a loss of up to £7.0m in kettle control and water revenues, while cost inflation and Covid-19 related expenses also continued to impact margins.

The Canadian bank noted the group had increased kettle control and water prices by an average of 4-5% to offset inflation and intends to flex its variable cost base and drive production efficiencies through the second half as part of an effort to minimise the impact. Strix also cited “a seasonal 2H weighting” across its core kettle control business.

However, Canaccord remains “unconvinced” that sufficient growth will flow in the near term from the water and appliance verticals to meet Strix’s target of doubling revenues to roughly £200.0m by 2025.

“We think the lifestyle products it provides such as water jugs, filters, and chillers will not be immune to consumers tightening their belts, and they will likely trade down/use products for longer as inflation bites and fears of a recession rise,” said Canaccord, who lowered its target price on the stock from 300.0p to 200.0p.

“We take a cautionary stance, downgrading our 2022E PAT forecast to £30.5m (from £32.1m) which results in 5% EPS downgrade.”

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