Asa Bridle Comments: Lack of momentum at Sports Direct – Liberum

 January 12, 2016, Proactive Investors UK

No light at end of miners’ tunnel suggests Barclays 

Don’t expect any relief for the mining sector this year. 

That’s the message from Barclays today, which has downgraded BHP Billiton (LON:BLT) to ‘underweight’ as part of a gloomy sector overview. 

The new price target is 515p, implying 19% downside, adds the broker. 

“Our commodity price changes have left the company generating very little earnings per share on our forecasts on a calendarised basis for 2016, while earnings and FCF are negative on spot.” 

Even after that, cashflow does not cover the dividend for at least the next 3 years implying further pressure on capex/opex and broader portfolio composition. 

“In particular the stock is trading on a 6.5% dividend yield assuming a 50% cut in the dividend implying the equity has not fully priced in the cut.” 

By contrast, BT’s (LON:BT.A) free cashflow generation should “expand materially over the coming years”, due to the EE acquisition/synergies, continued cost cutting, fibre upside and a positive pricing environment. 

BT has not yet quantified a dividend policy beyond March, but Barclays sees the potential for material increases increases for the March 2018 year. 

European hotels get mixed review from Citigroup. 

Intercontinental Hotels, which incidentally opened its 5,000th site today, is downgraded to ‘neutral’ from ‘buy’, while Whitbread goes the other way and is now a ‘buy’ for the broker. 

Genrally, after a great bull run over the past six years, the broker is becoming more cautious. 

Cash and carry distributor Booker (LON:BOK) also gets a downgrade to ‘neutral’ at Citi with the target price lowered to 170p from 214p. 

Slowing non-tobacco like-for-like sales and a moderation in underlying profit growth to mid-single digits will constrain the shares. 

Jefferies has started coverage of sheltered housing specialist McCarthy & Stone (LON:MCS) with a ‘buy’ rating and 303p target. 

“McCarthy & Stone provides the most attractive way to gain exposure to the UK’s ageing population, in our view.” 

The group competes at the opposite end of the market from the mainstream UK housebuilders, where sales are weighted towards first- and second-time buyers rather than last-time buyers. Barriers to entry are also high in McCarthy’s niche. 

Mind you, the US broker is keen on the other housebuilders as well following Taylor Wimpey’s update yesterday. 

“A structural shortage of supply coupled with a very pro-homeownership government and rising wages, provides fertile ground for share price growth, in our view. 

“Cash generation is also high and highly visible and, in our view, dividend streams also underpin valuations.” 

Barratt (LON:BDEV) , Berkeley (LON:BKG) and Galliford Try (LON:GFRD) all get upgrades to ‘buy’ from ‘hold’. 

Credit Suisse upgrades bookmakers Ladbrokes (LON:LAD) and William Hill ( LON:WMH) to hold and outperform respectively. 

Hill is in a position to return cash to shareholders suggests the broker, while benefits of the merger with Gala Coral have prompted the Ladbrokes upgrade. 

Retailers saw some big share price moves as the Christmas updates pleased or frustrated. 

Debenhams (LON:DEB) sales were ahead of expectations and gross margin on-track, which sparked a relief rally said Investec, which upgraded to ‘hold’. 

Supermarket Morrisons (LON:MRW), too, wwwuced a very encouraging update and a positive surprise said Cantor Fitzgerald. 

“We need to go back some way since we were able to make such a comment, which makes this trading update especially pleasing. 

Deutsche Bank has weighed up the prospects for the life insurers and decided it prefers Standard Life (LON:SL. and upgraded to ‘buy’ over SJP and The Pru (LON:PRU) both of which are downgraded to ‘hold’. 

Finally, there is the latest note from RBS’s bond team, which does not mince its words. Investors are doomed in essence. 

Sell (mostly everything) is its call for 2016. 

“We stick to our -10 – 20% equity downside call. In a crowded hall, exit doors are small. Risks are high,” the bank warns.