Broker tips: Bellway, Kenmare Resources, Hammerson

Analysts at Canaccord Genuity raised their price target on British housebuilder Bellway to 3,590p from 3,450p on Wednesday, praising the group for delivering an improved full-year net asset value per share despite falling margins.

Canaccord pointed out that in 2019, Bellway had delivered another "strong increase" in its net asset value per share at 14%, even as margins fell and said the firm's balance sheet looked to be "in good shape" to continue to support growth in site numbers and volumes over the medium-term as net cash sat at over £200m.

"Clearly, there remain risks related to Brexit and macro trends (Services PMI below 50 and unemployment edged up recently in UK) but, assuming sales rates hold up, volume growth should come through as site numbers increase," said Canaccord.

However, the Canadian broker said Bellway's guidance on margins was "disappointing and unexpected", but noted that margins of around 19.5% remained good and, when combined with volume growth, said that they would continue to support double-digit net asset value per share growth.

Canaccord, which stood by its 'buy' rating on Bellway, expected 2020 to see lower profits as margins reset but, assuming the wider macro backdrop holds up, it said profit growth should return in 2021.

"We continue to see attractive value in the shares over the medium-term as the expected growth is delivered, but in the near-term, they may remain under pressure until more visibility and confidence over the margin outlook and macro risks are forthcoming."

Over at Berenberg, analysts cut their price target on Irish mining company Kenmare Resources from 400p to 380p on Wednesday following the group's third-quarter results a day earlier.

Berenberg felt that operationally, Kenmare's Moma mine in Mozambique had performed from in line to slightly better than its own third-quarter estimates, with the project on track to meet production and cost guidance for the year.

The German broker also pointed out that excavated ore of 9.2 megatonnes was in line with its estimate and highlighted that grades were, in fact, "a little better than" its 3.4% heavy mineral at 3.63%.

Heavy mineral concentrate production of 304 kilotonnes was in line with forecasts, as was ilmenite production at 231kt and primary zircon production of 12.9kt also beat its 11.3kt estimates. Concentrates and rutile production also came in above estimates.

Berenberg said all this was "encouraging"; However, the broker highlighted the fact that total shipments of 193kt had missed its 322kt estimate as a result of poor weather conditions.

"While the company expects to ship +1mt in 2019, it does require a strong Q4," said Berenberg, which noted that a 35kt shipment had slipped into the final quarter at the end of Q3.

"We adjust our model to reflect the quarter, and also build in some conservatism in i) our FY 2019 shipments and ii) our zircon prices for the remainder of FY 2019 and FY 2020. This results in a reduction to our FY 2019 and FY 2020 EPS and our price target to GBp380," concluded Berenberg, which nevertheless maintained its 'buy' recommendation on Kenmare, telling clients the shares still offered "compelling value".

Lastly, Hammerson was in the red on Wednesday as RBC Capital Markets downgraded its stance on shares of the shopping centre owner to 'sector perform' from 'outperform' on valuation grounds.

RBC said that following the 45% total return from the shares since mid-August, the share price multiples no longer a factor in more than a reasonable bear case.

"Hammerson's share price discount to its last reported EPRA NAV/share reached a low of 70% (15/08/2019) following its 1H2019 results, but has fallen back to 56% following a 47% rise in its share price," RBC said.

"While such a discount is still higher than its historic average, so are the risks from its elevated financial gearing at a time of significant stress and uncertainty in UK retail property markets, in our view."

The bank also said it expects the current loss of demand-supply tension in UK retail property markets resulting from tenant failures and restructurings to continue to dent the operating performance of shopping centre landlords in the near term, irrespective of the quality of their properties and operating platform.

RBC maintained its 290p price target on the stock.