Broker tips: Hurricane Energy, TI Fluid Systems, Polymetal

(Sharecast News) - Analysts at Canaccord Genuity upgraded exploration and production firm Hurricane Energy from 'sell' to 'hold' on Thursday, stating the group appeared to be "pivoting to better times". Canaccord Genuity said Hurricane has "had a couple of very tough years", but noted that over the past six months, "the glimmer of hope has grown".

For much of the last two years, Canaccord said it had considered the risks associated with two basement production wells, now down to one, together with the looming mid-2022 FPSO lease expiry, July 2022 convertible bond maturity, and the weak oil prices added up to "a very challenging story".

However, the Canadian bank said all of those key issues had since improved, with production from Hurricane's Lancaster well #6 bing "much better" than it had expected and oil prices, of course, being "extremely favourable".

"There is still, in our view production risk, and we think the valuation is a little ahead of events. Nevertheless, Hurricane is a continuing turnaround story which looks to be in the process of pivoting towards a highly cash generative outlook that could open the way to a brighter future beyond the single Lancaster well," said Canaccord, which raised its target price on the stock from 2.6p to 9.0p.

TI Fluid Systems tumbled on Thursday after Jefferies downgraded the shares to 'hold' from 'buy' and slashed the price target to 195.0p from 350.0p.

Jefferies said conditions faced by the automotive parts maker were among the most difficult in its coverage.

The bank said that while the long-term equity story remains attractive, 2022 will be "another highly challenging year".

Jefferies also said the company's ability to recover raw material and inflationary costs from customers in FY22 is lower than expected, while expectations on electrification upside "may be too high".

Berenberg downgraded Polymetal on Wednesday to 'hold' from 'buy', citing heightened uncertainty around the Russian assets and saying it has changed its valuation to be based on the NAV of the Kazakh assets alone.

The bank, which slashed its price target on the stock to 300.0p from 500.0p, said the share price has become detached from the underlying business.

"We are currently attributing no value in our NAV to the Russian assets given uncertainty about Polymetal's ability to remit funds from assets in the country to other parts of the corporate structure," it said.

Berenberg said the company faces a number of material headwinds in terms of negotiating the sanctions that have been applied by the West on Russia and vice versa.

"There is the risk that Alexander Nesis, who holds a majority interest in ICT, the company's 24% shareholder, will be sanctioned," it said. "The company may also need to secure debt from either domestic or Chinese lenders to replace the debt that is currently held with European banks, with higher borrowing costs. The company will face challenges importing spares, specialist equipment and skills from Western suppliers.

"Russian companies are now not allowed to remit dividends to offshore entities and so any dividend in the future will need to be funded from free cash flow from the Kazakh entities. A key decision that will need to be made is whether to split the business into its Russian and Kazakh assets, with the latter accounting for 35% of our NAV and 30% of group production."