Broker tips: Agronomics, FeverTree, Rio Tinto

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Analysts at Canaccord Genuity initiated coverage on cellular agriculture company Agronomics with a ‘buy’ rating and 19.0p target price on Monday, stating the group was “healthy, sustainable, kinda – and profitable”.

Canaccord stated global food production was “in crisis”, with nearly all available arable land in use, mainly to grow feed grain for livestock, and said there was “little scope” to further increase resource inputs due to damage to the wider ecosystem. It also noted wild fish catch peaked more than 20 years ago and said aquaculture was causing further problems.

However, the Canadian bank said Agronomics provided long-term solutions to produce food and materials through sustainable, cellular agriculture, providing increased food security. It also noted other key benefits included “tastier, healthier, contamination-free food”, no “intrinsic cruelty”, much lower resource inputs, and reduced antibiotic degradation.

“Addressable markets for its companies are vast, in both food and materials, based on both animal and plant precursors, and the processes are moving rapidly towards being cost competitive,” said Canaccord.

“We believe Agronomics’ strategy of early-stage involvement offers the potential for outsize gains, some already demonstrated.”

As an investment company, Canaccord said Agronomics trades on net asset value and stated its price target of 19.0p means the stock would trade at 1.3x its estimate of end-June net asset value.

Tonic maker FeverTree was downgraded by Jefferies on Monday following a profit warning last week.

“With near-term cost pressures hitting the shares hard, key questions from here are (1) to what extent margins can recover and (2) the medium-term outlook for the core UK market, given headwinds from gin category moderation and risk of consumer downtrading,” Jefferies said.

“With low visibility on both factors, we downgrade to hold.” The bank, which previously had Fever-Tree at ‘buy’, slashed its price target to 900.0p from 3,100.0p.

Jefferies also cut its 2022 EBITDA forecast from £65.0m to £38.5m to reflect additional headwinds from logistics and inflationary pressures. This compares to the company’s updated guidance range of £37.5m to £45.0m.

“Our organic growth assumptions in our divisions for F22 moderated to reflect weaker performance in the UK, ongoing uncertainty and risk of continued disruption in the US on supply chain albeit offset by stronger performance in Europe.

“Overall, we model group sales of £350.0m versus guidance range £355.0m-365.0m.”

Analysts at Berenberg lowered their target price on mining giant Rio Tinto from 4,200.0p to 4,100.0p on Monday following the group’s second-quarter production report.

Berenberg said Rio Tinto’s Q2 production report did little to dissuade its view that the group’s interim results on 27 July will disappoint current market expectations.

The German bank stated all eyes were on iron ore, 71% of Rio’s full-year earnings, and while volumes came in “a bit light” versus its 79.7 megatonne estimates at 78.6mt, shipments were “a little better” than expectations of 79.7mt at 79.9mt.

“We are closely watching production and cost guidance, and while both of these have been reiterated (320-335mt for iron ore shipments and $19.50-21.00 per tonne for iron ore costs), we believe that shipments will come in at the bottom end of guidance (a run rate it has achieved in the past, but has struggled to surpass) and we note that FX has been adjusted by 5% which helps to offset local currency inflation in costs,” said the analysts, who added that if the Australian dollar strengthens, it thinks that costs could come under more pressure on a USD basis.

To finish on iron ore, Berenberg also said it believes some volume risk exists to the downside, given “elevated levels of unplanned absences…due to Covid-19 case spikes”.

Berenberg, which reiterated its ‘sell’ rating on the stock, also noted commentary about “a volatile price environment for [aluminium] raw materials”, which it thinks will likely pull down consensus estimates and affect working capital given increasing inventory balances.

Finally, the analysts said Rio’s “overarching macro thesis” was not supportive given that iron ore was currently below $100 per tonne.