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Broker tips: Anglo American, Direct Line, Aviva, Arrow Exploration

By Iain Gilbert

Date: Wednesday 29 Nov 2023

Broker tips: Anglo American, Direct Line, Aviva, Arrow Exploration

(Sharecast News) - Analysts at Berenberg lowered their target price on precious metals miner Anglo American from 2,500.0p to 2,200.0p on Wednesday ahead of the group's 8 December update.
Berenberg said its main adjustments to the stock related to working capital builds, predominantly in its diamond business due to weak market conditions, and other working capital adjustments - such as an increase in receivables as its Quellaveco asset in Peru ramps up to full production.

The German bank stated its overall takeaway was that net debt was moving higher, with year-end net debt forecast to hit $9.9bn, broadly in line with consensus but sharply higher when compared to 2022's $6.9bn figure.

Berenberg also noted that weak commodity prices have affected cash from operations and that it forecasts a second consecutive year of working capital builds, which stands at roughly $4.0bn of working capital built in 2022-23.

"We adjust our model for the recent De Beers sales cycle result ($80.0m), reduce realised nickel prices and model higher interest rates. We push up our working capital build and lower our EBITDA multiple to 5th.0x (from 5.8x)," said Berenberg, which reiterated its 'hold' rating on the stock.

Deutsche Bank has raised its ratings for insurance provider Direct Line from 'hold' to 'buy', after turning more positive on the sector heading into next year, but has cut its rating on Aviva.

For Direct Line in particular, the bank notes that the shares have dropped by around 60% over the past three years due to weak profitability, a strained capital base, and the need for provisions.

Deutsche Bank raised its target price for the stock from 170.0p to 250.0p, suggesting around 30% upside from current levels.

In contrast, the bank cut its rating for life insurer Aviva from 'buy' to 'hold' and dropped its target price from 495.0p to 485.0p, highlighting "small earnings headwinds and questions around excess capital return".

Analysts at Canaccord Genuity raised their target price on oil miner Arrow Exploration from 42.0p to 46.0p on Wednesday after the group's Q3 results were the best in the company's history.

Canaccord Genuity said Arrow's results showed the benefits of its investment were now delivering growing operating cash flow, but said that it was "only a taster of the potential" in 2024.

The Canadian bank expects the most significant operational catalysts in the next 12 months to be the performance of its CN horizontal development wells and the Tapir exploration drilling results.

In addition, it anticipates its Tapir licence partners to formally start the licence extension process in 2024 - another important market catalyst.

"We make a number of adjustments to our production profile, cost and capex outlook, tax assumption, and certain asset riskings. As a result, we increase our risked NPV12.5 target price to 46.0p (from 42.0p) which excludes the planned 2024 exploration (risked 6.0p, unrisked 14.0p)," said Canaccord, which reiterated its 'buy' rating on the stock.

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