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01 Feb 2021 | 14:36

Broker tips: Pearson, Polymetal, Marston's, Synthomer

(Sharecast News) - UBS downgraded its recommendation on education publisher Pearson on Monday to 'sell' from 'buy' and cut the price target to 730p from 741p, noting the stock is up around 60% in the last three months and trading at 19x the bank's FY22 earnings per share estimates. "We think this multiple will be hard to sustain once technical market issues abate. Therefore, we would need to see material earnings upgrades for shares to perform which while possible, is not our base case," it said.

UBS said that given the continued impact on some of Pearson's businesses from Covid-19, and the prospect of new investment to build a D2C learning platform, it expects the guidance range for 2021E EBIT to be below consensus forecasts at £350m-£450m, versus consensus of £415m and UBS' forecast of £397m.

"Our medium-term view that Pearson can generate good EBIT growth as Covid pressures abate, digital courseware grows, and Pearson increases its exposure to remote learning trends is unchanged," it said.

Analysts at Berenberg lowered their target price on precious metals miner Polymetal from 2,580.0p to 2,310.0p on Monday, citing cost headwinds in 2021.

Berenberg noted that Polymetal, which operates a portfolio of mines in Russia and Kazakhstan, recorded produced 1.55m ounces of gold equivalent in 2020 versus guidance of 1.5m, driven by good performances at its Kyzyl, Varvara and Albazino mines, and also highlighted that cash costs for 2020 were now guided to be below previous estimates, with tailwinds from weaker local currencies in Kazakhstan and Russia offsetting the impact of Covid-19 costs and higher royalties.

While Polymetal kept production guidance of 1.5m ounces in 2021 and 1.6m ounces in 2022 unchanged, costs were guided to be $700 to $750 per ounce, with a negative impact versus previous expectations due to the strengthening of the Russian rouble and Kazakh tenge, higher domestic inflation, fuel prices and Covid-19 costs.

"We have updated our forecasts to take account of the results and updated guidance including higher costs," said the German bank, which also reiterated its 'buy' rating on the stock.

Liberum has downgraded Marston's from 'buy' to 'hold' after takeover speculation pushed the group's share price higher.

The brewer and pub company has been considering an unsolicited approach from US private equity firm Platinum Equity Advisors and while no further details have been announced by Marston's, in accordance with the Takeover Code, Platinum must make a firm offer or walk away by 26 February.

Liberum, which has a 90.0p target price on the stock, said: "Marston's shares have risen up to its current pro forma net asset value following confirmation of a bid approach. No firm offer has been made, and hence no specific details have been provided while the board evaluates the proposal."

Based on pre-Covid trailing underlying earnings of around £180.0m, current net asset value of 87.0p and recent transaction comparatives, Liberum believes an offer could come in at above 100.0p.

"However, this is dependent on many factors. We move our recommendation to 'hold', giving the upside risk balance with uncertainty over whether a final offer can be agreed."

Analysts at Canaccord Genuity raised their target price on Synthomer from 425.0p to 550.0p on Monday after the group reported "robust" fourth-quarter figures last month.

Canaccord said Synthomer's recent results indicated strength in all its major markets and also pointed to a particularly solid rebound in styrene-butadiene rubber and multiple consumer-facing markets.

The Canadian bank stated that assuming recent strong margins continue through 2021, which it now believes to be likely, earnings will also be "much stronger" than its previous estimates.

Canaccord said it estimates that around 45% of this year's underlying earnings will come from Synthomer's nitrile business, with the balance being widely spread across end markets.

"The result is a significant increase in our earnings expectations: we are increasing EPS by an average of 30% from 2021E onwards," said the analysts, which also reiterated their 'buy' rating on the stock.
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