Broker tips: Atlantic Lithium, IHG, Wizz Air, Chemring

(Sharecast News) - Canaccord Genuity lowered its target price on exploration and development firm Atlantic Lithium from 80.0p to 75.0p on Friday after the Ghanaian Government awarded it the mining lease for the Ewoyaa lithium project. The analysts said this was a "key milestone" in the development process, with only environmental approval remaining as the last major licensing hurdle, which it expects to take place in the first half of 2024.

The lease will need to be ratified by the Ghanaian Parliament before it is final, with the terms of the 15-year lease including a requirement to reach commercial production within 24 months of ratification, an increase in the Government free carry from 10% to 13%, and an increase in the royalty from 5% to 10%. The equity split of joint venture partners at the project level going forward will be - Atlantic Lithium at 40.5%, Piedmont Lithium at 40.5%, MIIF at 6%, and the Government of Ghana at 13%.

"Our take: Beyond the obvious benefit of progressing towards development, the award should lay to rest concerns about the Government restricting the export of lithium in its 'raw state' (whether this was a reference to spodumene concentrate or simply DSO is unclear). ALL now has its key permit in place, and project participation levels align national interests (in our view)," said Canaccord, which reiterated its 'speculative buy' rating on the stock.

"We view Atlantic as one of the highest quality hard-rock developers globally. The Ewoyaa project has low opex (US$377/t), low capex (US$185m), simple processing, and a fast path to production (early production to come 9 months after commencement of construction, with full scale ~344 ktpa to come 9 months later). ALL continues to trade at a discount to peers, with a P/NPV of ~0.35x (vs ~0.5x for peers), which we believe does not reflect the advanced nature of the project."

Bank of America has lifted its target price for shares of hotels group IHG after a stronger-than-expected third-quarter performance, saying that the stock was too cheap compared to the wider sector.

IHG reported that revenue per available room rose 10.5% year-on-year in the three months to 30 September, ahead of BofA's 9% estimate, driving year-to-date growth to 18.9%.

"Given better-than-expected travel demand, we now expect a higher RevPar in 4Q at +8.6% (vs 5.1%, previously) resulting in our +16% (from +14.9% before) estimate for 2023E," the bank said.

As such, BofA's price objective for IHG rose from 7,200.0p to 7,500.0p, while the bank also retained its 'buy' recommendation on the stock.

"Shares trade on 12x EV/EBITDA, which is a 16% discount to US peers (wider than history at 4%) - we think this is unjustified, given IHG's high returns (>30% ROIC), earnings growth (15% 2023-27E) and cash return potential."

Barclays has slashed its target price for low-cost airline Wizz Air on the back of rising geopolitical tensions in Israel, which it says will dent profits this year.

Barclays cut its target for the shares from 1,800.0p to just 1,500.0p and maintained an 'underweight' position on the stock as a growing number of airlines were forced to cancel flights to Israel and surrounding regions as a result of the ongoing conflict between the Israeli government and its continued bombing of Gaza.

"The Israel-Palestine conflict adds a new challenge for Wizz, on top of its uncertainties from the GTF engine problems," the bank said in a research report on Friday.

Meanwhile, Wizz Air was also still struggling with issues to do with Pratt & Whitney Geared Turbofan engines, which power all of its A320 NEO family aircraft. The company said in September that the issues will reduce capacity by 10% in the second half of the fiscal year to March 2024.

"We lower FY24 net profit estimates by 7% anticipating weakness on Mid East flying. Estimates for FY25 and FY26 are unchanged but remain far below consensus."

Berenberg reiterated its 'buy' rating and 370.0p target price on aerospace and defence firm Chemring on Friday after the company flagged a potential delay to a countermeasures shipment last month.

In September, Chemring said there was a risk that roughly £25.0m of countermeasures shipments, approximately 5% of group revenues, might be delayed until the 2024 trading year due to a third-party supplier quality issue.

Delivery was contingent on receiving approval from the US Department of Defense to ship the items, once it had approved the quality of raw material provided by a supplier. Chemring has already manufactured the countermeasures and revenue will be recognised upon delivery.

However, while Berenberg said these issues were now "largely in the rear-view mirror", Chemring's shares were still trading 10% below their level before the September trading update, underperforming peers by a similar amount. Berenberg said it thinks this "ignores the strong underlying performance" as noted in the trading update, after putting the timing issue to one side.

"Following the share price underperformance, valuation is attractive with the shares trading on 12.2x P/E for an 11% EPS CAGR over 2024-27. We think the share price weakness offers a good entry point," said Berenberg. "We raise our FY 2023 estimates and lower our FY 2024 estimates as we now assume the majority of the shipment is delivered in the current financial year, having previously assumed FY 2024. This brings our FY 2023 estimates back to where they were before the September trading update, while we raise our outer-year EPS estimates due to a slightly lowered GBPUSD FX rate."