Broker tips: Glencore, BT, Plus500, Castings
By Iain Gilbert
Date: Tuesday 18 Feb 2025
(Sharecast News) - Morgan Stanley upgraded Glencore on Tuesday to 'overweight' from 'equalweight' as it argued that concerns about deteriorating coal prices and around marketing profits in a low-volatility post-war world are "exaggerated".
Morgan Stanley noted that the shares have substantially lagged their diversified mining peers as well as their own commodities basket, partly driven by concerns around the potential implications of an end to the Ukraine war on its business' earnings power. It said coal exposure has become out-of-favour given the pullback in commodity prices, while some investors are increasingly concerned about the impact on marketing profits from potentially lower commodity price volatility and fewer dislocations.
However, the bank said the "steep" discount to sum of the parts offers a compelling risk/reward, noting that Glencore has a track record of proactively managing production during environments of subdued commodity prices by taking loss-making tonnes off the market and scaling back spending to protect cash flows.
It also pointed out that Glencore's marketing business historically has had higher levels of profitability during periods of heightened volatility and increased price dislocations.
"There is a perception that a potential end to the war in Ukraine would lower commodity price volatility, and therefore diminish the business' earnings power," it said. "We disagree and argue that energy price volatility is on the rise, while tariff risks have amplified geographic dislocations across base metals, presenting the business with attractive arbitrage opportunities."
MS kept its price target at 470p and said Glencore was its new "top pick".
BT Group slumped on Tuesday as Citi downgraded its stance on the shares to 'sell' from 'buy' and cut the price target to 112p from 200p as it said that Openreach was facing a revenue decline.
"We forecast Openreach turning to revenue decline in 2025/26 and staying there for the rest of the decade, which could see a negative shift in sentiment and questions as to whether BT will achieve its guidance for £3bn of normalised free cash flow by the end of the decade (Citi 2029/30E £2.3bn)," the bank said.
"We also have concerns around the sustainability of BT Consumer's pricing dynamic in the long-term, and based on our in-depth consensus tracker analysis, we also believe that consensus is overoptimistic in expecting restructuring specific item costs to reduce significantly in the next few years (Citi 2025/26E £401m versus consensus £250m)."
Citi also said it was adding BT to its focus list.
Markets had a negative reaction to Plus500's annual results and share buyback announcement on Tuesday but that didn't stop Jefferies from hiking its target price by nearly a fifth and reiterated a 'buy' recommendation.
The online trading platform operator said it would return roughly $200m to shareholders via a share buyback and dividends, as it reported 2024 revenues had grown 6% to $768.3m, while underlying profits rose just 1% at $342.0m.
Nevertheless, shares were trading 4.2% lower at 2,745.08p by around midday on Tuesday, having dropped as much as 9% early on.
Jefferies said that it was tweaking its forecasts downwards after 2024 revenues beat estimates but profits missed slightly owing to higher costs. However, the broker said it believes there is upside risk to its projections for this year, "especially with the US business performing well".
"PLUS has remained on a c. 10x earnings multiple, despite giving the highest total shareholder returns of any stock over the period since its IPO in 2013. With revenues diversifying and an observable indicator of client activity in the US futures business, we think a higher multiple is justified," Jefferies said.
After accounting for an FX difference, the broker said a price-to-earnings multiple of 11x gives a 3,300p target price for the stock, up from 2,800p previously.
Analysts at Canaccord Genuity lowered their target price on metal fabricator Castings from 340.0p to 325.0p on Thursday as it said things were "tough out there".
Canaccord Genuity revised its estimates to reflect Castings' Tuesday trading for the year ending 31 March, which reported that core heavy truck customer demand schedules saw a further material reduction from mid-Q3, having previously fallen 20% year-on-year on an underlying market normalisation through H1.
More recently, Canaccord Genuity noted that Castings has seen Q4 volumes come back up to H1 levels as OEMs reported improving order intake, meaning there were tentative signs of volume growth through to Spring backed by rising sales volumes.
"While this underlying trading pattern results in a downgrade on its own, this has been compounded by two additional headwinds which we think impacts profits by a further ~£3.0m combined in FY25E, but which are not expected to recur in FY26E," said Canaccord.
The Canadian bank said that the first was enforced penalties on unused electricity volumes that had been forward purchased, and the second was start-up and trading losses in Castings' new Scunthorpe business.
"Our revised FY25E adjusted PBT/EPS estimates are therefore set 45% lower at £5.5m/9.4p with net cash down 33% to £10.6m. Importantly this sees the balance sheet in a strong and healthy position after significant capex and dividend distributions were made through the year," said the analysts, who reiterated their 'buy' rating on the stock.
"In addition, we prudently factor in a slower underlying market recovery in our FY26E/27E volume assumptions given low visibility."
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