Broker tips: Hurricane Energy, Travis Perkins

Analysts at Canaccord Genuity upgraded exploration and production firm Hurricane Energy from 'hold' to 'speculative buy' on Friday, stating the company had "weathered significant storms" that had nearly left it shipwrecked.

Canaccord Genuity said Hurricane's fortunes appeared to have changed, with winds "gentle" and the waves "calm", while all the elements also appeared to be "responding kindly" to the company's wishes.

"It is clear how this transition has come about; good operational management, continued better-than-expected P6 well productivity, very high levels of operational performance from the Aoka Mizu FPSO, and much-improved oil prices," said Canaccord.

"It really needed convergence of all these to put Hurricane in its current position, where the company has rapidly pivoted from a potential existential threat to a much brighter future with growth options."

The Canadian bank, which kept its 9.0p target price on the stock unchanged, highlighted that largely fixed costs had enabled a matrix of production/oil price combinations that defined project cashflow neutrality.

"At our oil price assumptions, that is around 5,200 bopd, but more optimistic oil pricing (though still in line with the forward curve) would reduce that level to around 4,600 bopd. Based on guidance production declines that would extend production by about three months," said the analysts.

"On that basis, assuming continued single well production, we anticipate positive asset cashflow into early 2024; and an additional successful producer would extend that to mid-2025."

Analysts at Berenberg downgraded builders' merchant and home improvement retailer Travis Perkins from 'buy' to 'hold' on Friday, stating it now sees more upside elsewhere.

Berenberg said it believes it to be inevitable that rising economic headwinds will affect construction demand globally, although it still thinks repairs, maintenance, and improvements activity "should be relatively more resilient" as in prior downturns.

However, compared to rival Grafton, Berenberg believes consensus forecasts for Travis Perkins in 2022 were "more demanding" and also noted that margins were lower, there was limited M&A upside, and also reckons there was less scope for additional cash returns.

"After the completion of the share buyback programme from the P&H disposal proceeds, we forecast post-IFRS-16 leverage to be at 1.4x net debt/EBITDA. Given the group's target leverage range of 1.5-2.0x, we think there is scope for a maximum £300m buyback (12% of market cap)," said the German bank, which also lowered its target price on the stock from 1,800.0p to 1,380.0p.

"However, given macro risks, it is unlikely the group levers up to the top end of its target range. While another buyback would be regarded as a positive catalyst, we think there is more balance sheet optionality at Grafton, which has a net cash position and M&A upside on top, supporting our preferences there."

Reporting by Iain Gilbert at Sharecast.com