Leading shares are heading higher, with Anglo American among the risers despite the group suspending operations at a copper mine in Chile.
It said protesters had seized installations at the Los Broncos mine on Wednesday, and it had decided to evacuate staff for safety reasons.
But its shares are up 26p to £11.20 as Credit Suisse raised its price target from 970p to £13, partly on (longer term) break-up hopes, while Deutsche Bank was also positive. Credit Suisse said:
With the strong recovery in coal prices and balance sheet metrics it seems increasingly likely that the divestment plan outlined earlier this year will be watered down and executed at a much slower pace. While this will bring question marks over group strategy, we believe it is the sensible course of action and should refocus investor attention back to the South Africa (SA) businesses. Next week’s site trip to SA and Botswana could begin to shed light on management’s restructuring plans for next year. We raise 2017 earnings on higher coal prices and lift our target Price to £13 a share from £9.7 a share.
A full break-up of the business still looks compelling to us given some of the core assets – in particular the two major copper assets – could attract significantly higher valuations than is currently being ascribed by the market. Our break-up valuations is around £18 a share or over 60% potential upside.
Overall the FTSE 100 has added 17.06 points to 6766.78, with better than expected retail sales helping high street chains. Next is up 75p at £51.65 and Debenhams is 1.1p better at 57.10p. Marks & Spencer however is down 3p at 334.5p as its shares went ex-dividend.
Also being quoted without the shareholder payout was Imperial Brands, 27p lower at £34.41.
The biggest loser so far is Royal Mail, down 21.7p at 477.2p after its first half profits fell 5% and said it would raise its cost cutting target from £500m to £600m.
Rolls-Royce has fallen another 17p to 721.5p in the wake of Wednesday’s update, but Capita is on the rise despite being caught in a two way pull. Analysts at Stifel moved from hold to buy, saying:
Capita finds itself at a moment of two way heightened risk but the group’s woes need to be relativized. It is not a “bad” company, it has hit a few snags on the road but it hasn’t done anything fundamentally wrong. The group’s rating (8.5 times 2017 PE, at a discount to Mitie) is wrong, in our view. Our call is that a modest re-rating is likely as balance sheet issues and concerns over earnings risks move into the rear view mirror. We see around 17% upside potential by applying a 10 times multiple to our 2017 forecasts.
But Robin Speakman at Shore Capital issued a sell note:
We have examined the likely scenarios for the outsourcing services conglomerate in restructuring and conclude that guidance is subject to significant risk…
Post the share price fall since the warning of 29 September Capita may now look cheap. Yet visibility into next year and beyond is clouded by uncertainty over the impact of restructuring the business to refocus on organic growth, the impact of cost reduction and the likely cost of this as well as markets which continue to be tough, in our view. We have taken a further look at our estimates post the September profit warning and have determined that these were too optimistic given the November statement on restructuring (in particular for 2017). Accordingly, given the challenges being presented to the group, perhaps some being self-made, we cut our forecasts further – this in anticipation of stronger organic growth taking longer than previously expected to kick-in and with the prospect of several businesses being moved to discontinued, closed or held for sale. 2017 looks to us like a year of retrenchment with new firmer foundations for future growth attempting to be built. With an assumption of higher organic revenue growth emerging, margins still remain a concern for us, cost cutting being required to potentially meet our forecasts; but what of investment in the cost base (including intangibles development) from which to sustain longer-term growth? We downgrade our forecasts…
The balance sheet precludes further acquisition activity prior to a new equity raise, in our view. We forecast a held dividend, noting the attractions of a 5.6% yield. From the current low point in the share price, we would urge selling into strength.
Among the mid-caps, Virgin Money is down 21.5p at 317p after shareholder WL Ross placed its remaining 53m shares – 12% of the business – at 320p each. Investec said:
This increases the free-float to around 65%, leaving only Virgin Group’s 35% stake which, (rightly or wrongly), we assume to be a “quasi-permanent” investment rather than presenting a private equity style “overhang” risk. We see the WL Ross selldown as a technical positive. However, we continue to see considerably greater value in Aldermore (Buy), Shawbrook (Buy) and OneSavings (Buy) despite their recent outperformance.