Broker tips: Kistos Energy, Imperial Brands, NatWest, Trainline, Rio Tinto

By Iain Gilbert

Date: Monday 20 May 2024

Broker tips: Kistos Energy, Imperial Brands, NatWest, Trainline, Rio Tinto

(Sharecast News) - Analysts at Berenberg slashed their target price on independent energy company Kistos from 455.0p to 305.0p on Monday following the group's full-year results and updated guidance.
Berenberg said it had updated its model to incorporate Kistos' "broadly in line" full-year financial performance but opted to reduce its FY24/25 production forecasts by 28%, which results in a reduction in its 2024 and 2025 revenue forecasts by 25% and 26%, respectively. Its underlying earnings forecasts were also down, by 41% and 36%, respectively.

However, Berenberg said Kistos retains "a strong near-term growth profile" thanks to its Balder X project in Norway, which also drives healthy FCF through 2025.

"Kistos has scope to add value through conversion of resources into reserves, primarily in Norway, and there is potential for upside in the recently acquired storage assets," said the analysts, who reiterated their 'buy' rating on the stock.

The German bank also highlighted that M&A activity was likely to remain "a key strategic priority" and that the company was continuing to "actively screen" for accretive opportunities.

"We adjust FY24 production in line with guidance and our longer-term asset profiles reflect updated proved-plus-probable (2P) reserves estimates," said Berenberg. On our updated numbers, the shares are trading on FY25 EV/EBITDA of 1.4x, EV/DACF of 1.7x and an FCF yield of 98%."

Jefferies has lifted its target price for Imperial Brands from 1,710.0p to 1,850.0p following a strong set of first-half results from the cigarette, tobacco and vape group last week, but has maintained a 'hold' rating, saying that pressures are building for the company.

"IMB's 1H24 was very robust. We continue to feel it is over-earning, however, which could mean difficulties at some point," Jefferies said on Monday, highlighting two key areas of risk in combustibles and reduced risk products (RRP).

In combustibles, the broker said the industry volume backdrop in Imperial's core markets "continues to get worse and we don't see things improving", with first-half volumes in Australia, the UK and US down 25.3%, 15.2% and 8.7% respectively.

Meanwhile, headline RRP as a percentage of group sales remains "muted", sitting at just 3.9% in the first half, with absolute sales in the EU down on last year.

"The key metric to assess, for us, is its fair share of RRP relative to cigarettes. This is a minimum requirement, in our view. IMB are way away from this hurdle rate on our estimates, with estimated US and EU combustible share in FY23 at 15.0% vs RRP stick equivalent share at 1.4%," Jefferies said.

"That said, right now the market is focused on cash returns which remain compelling. Stay 'hold'," Jefferies said.

Shore Capital downgraded NatWest on Monday to 'hold' from 'buy' as it said the shares were "entering fair value territory".

The broker noted that NatWest shares are up 46% year-to-date, significantly outperforming the FTSE All-Share Index up 8% and FTSE All-Share Banks Index up 18%.

"This has occurred despite the government reducing its shareholding from around 38% at the start of the year to circa 27% today, with more to come by way of a directed share buyback and possible discounted retail placing," it said. "As a result of the re-rating, the stock is now trading at a slight premium to TNAV, while the upside to our 350p fair value is now just 9%.

Deutsche Bank initiated coverage of Trainline on Monday with a 'buy' rating and 470.0p price target on Monday as it crowned it Europe's leading train and coach app.

"Trainline offers a comprehensive collection of travel options to customers, in addition to unique, AIdriven information that helps individuals make the best decisions," DB said, noting that momentum at the group was strong in both the UK and Europe.

"We see significant opportunity for the UK business to outperform as digital ticket penetration continues to grow, 47% in 2023, with potential to grow to at least the 60s," the bank said. "The group's business in Italy and Spain is gaining momentum; more detailed financial disclosure here has potential to allow a more granular valuation of these businesses, and the broader European opportunity."

DB added that France and Germany offer significant future potential as competition enters each market.

Citi has cut its rating for Rio Tinto from 'buy' to 'neutral', saying that macro headwinds are rising for the mining group following a period of share-price outperformance.

As of Friday's closing price of 5,785.0p, the stock was up roughly 27% since August 2023, but its deep discount to the wider sector has "now eroded", according to Citi.

"We still have China macro concerns. We are unlikely to see any meaningful support for steel demand from recently announced property easing; all property indicators are still in deep contraction," the bank said. "While the recent Politburo meeting pledged to support the property sector through supply and inventory management (to stabilise house prices and sales), Citi thinks this is unlikely to stimulate incremental steel demand."

Citi, which kept its 6,000.0p target price unchanged, added that China steel mills were now loss-making again going into what was traditionally a period of seasonal weakness for mining equities.


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