Broker tips: Anglo American, St James's Place
By Iain Gilbert
Date: Wednesday 24 Jun 2020
(Sharecast News) - Anglo American shares will rise further because investors have not spotted the extent of the miner's potential to recover from the Covid-19 crisis, Credit Suisse said as it increased its price target on the stock.
Credit Suisse analyst Conor Rowley and colleagues said they were conservative on potential price rises but that Anglo American had other qualities that were underrated by the market. The analysts upped their target on the shares to £20.20 from £18 and kept their 'outperform' rating.
Anglo American's volumes will increase at its Kumba iron ore business and platinum mines followed by a recovery in the diamond market. The company will then ramp up its Quellaveco copper project.
The company has also said technology improvements could cut costs by $1bn and that these gains are not included in earnings estimates. Anglo American's high product diversification also sets it up well for uncertain markets, Rowley said.
"Anglo has performed strongly over the past few months but ... we think this is a simple reflection of what we have seen in the underlying commodities and that the shares are yet to reflect the longer-term drivers in the company's recovery from the pandemic," Rowley wrote.
The path mapped out gives a steady stream of catalysts for the shares, Rowley said. Anglo American also plans to quit its South African thermal coal operations in the next two or three years. For environmental reasons, and following Norges' decision to sell its Anglo share because of the exposure, this is good news, Rowley added.
Analysts at Berenberg raised their target price on asset manager St James's Place from 875.0p to 1,005.0p on Wednesday in order to better reflect the recent recovery in financial markets and more resilient than expected trends in flows.
Berenberg said St James's Place was the "indirect beneficiary of market strength", highlighting that The Financial Services Compensation Scheme accounts for 12% of the group's cost base.
While the analysts continue to expect the cost of the FSCS to grow by a double-digit percentage in the near term, the recovery in financial markets was also said to likely ease cost inflation at the margin and for this reason, they also see potential for the company's cost line to benefit from the recent recovery in financial markets.
The German bank also said flows remained "reassuringly robust", with fears that the first quarter's volatile financial markets and coronavirus-related social lockdowns would weigh on SJP's flows in the second quarter appearing to be "unfounded".
Recent trading statements confirmed the group has continued to see solid demand for its services in April and May, with annualised net inflows of roughly 9% so far in the quarter, materially ahead of the 2% annualised inflows Berenberg had anticipated at the start of the same.
However, Berenberg noted that the recent strength in the group's shares left them trading close to its assessment of fair value, leading it to retain its 'hold' rating on the stock.
The analysts also cautioned of "modest" headwinds stemming from revised pension rules after the Financial Conduct Authority recently confirmed plans to disincentivise transfers out of defined benefit pension schemes.
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