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Anglo American ought to drop its divi, Investec says

Anglo American, Premier Oil, House builders, Asos and Smith & Nephew are all in the broker spotlight

The market clearly expects more bad news from the miners, Elliot says

The mining team at Investec has called on Anglo American (LON:AAL) to cut back on its current US$1bn a year dividend.

Anglo American’s share price has fallen to levels not seen since 2002 and the market clearly expects further bad news from the group,” Investec analyst Marc Elliot said in a note.

“In current market conditions with commodity prices having collapsed, we believe it would be sensible for Anglo American to cut its dividend at the next interim results.

“The company’s credit rating is one notch away from junk status, and a downgrade could lift debt service costs materially. At current commodity prices, management has little choice but to focus on balance sheet preservation in order to navigate a sustained downturn.”

In the oil and gas, Dublin based broker Goodbody says Premier Oil’s (LON:PMO) production update was positive, despite the sector ‘headwinds’.

“In particular, we would point to the ‘flat’ net debt profile,” analyst Gerry Hennigan said.

He adds that Premier Oil is “defensively positioned” in the near term plus there is the prospect of significant production growth as the Solan field comes on stream.

Yesterday’s post-budget sell off in UK house builders was overdone, says investment bank UBS.

Analyst Gregor Kuglitsch does, however, acknowledge that ‘disappointingly’ it was the first negative budget for the housing sector for some time, and says Berkeley Group (LON:BKG) will likely be worst hit by changes to the proposed reduction in buy-to-let related tax breaks.

Kuglitsch, in a note, points out that Berkeley is more exposed to the changes than its peers with around half of its properties sold to investors rather than residential buyers.

As one might also expect property in the capital will be most affected too.

“In our view, those with London exposures are likely to feel the highest impact on demand/house prices given the greater proportion of investor sales in the capital,” Kuglitsch said.

He also highlights that about 12% of Barratt Developments (LON:BDEV) sales are to buy-to-let investors, mostly in London, while just 5% of Bellway’s (LON:BWY) sales are in this category.

The analyst does also point out that the tax breaks aren’t relevant for cash buyers or foreign investors.

Elsewhere, at UBS, analyst Adam Cochrane has downgraded retailer Debenhams (LON:DEB) to ‘neutral’ from ‘buy’. He says the high street department store is improving, just not quickly enough.

Liberum Capital, meanwhile, upgraded online clothes retailer Asos (LON:ASC) to ‘hold’ from ‘sell’.

Smith & Nephew (LON:SN.) is upgraded to ‘buy’ from ‘hold’ by Berenberg, which says its now the right time to pick up shares in the replacement hip maker because a recent pullback has created “an attractive entry point”.

The same sentiment was repeated by Goldman Sachs in regards to Prudential (LON:PRU) which has been added to the American bank’s ‘conviction buy’ list following the share’s recent underperformance; the lower price means more upside, so the theory goes.

“In our view Prudential’s recent underperformance offers an attractive entry point into one of the best positioned compounding businesses in our European coverage universe,” said Goldman analyst William Elderkin.

Goldman’s price target of 1845p represents more than 20% upside to today’s price for Pru.

Barclays downgraded media and publishing groups Pearson (LON:PSON) and Reed Elsevier (LON:REL) with price target for both reduced, to 1,290p from 1,405p and 1,195p from 1,225p respectively.

Both Barclays and Deutsche Bank downgraded United Business Media (LON:UBM), with the German bank describing “lacklustre near term trends”.

Quick facts: Anglo Aluminum

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Market: TSX-V
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