Broker tips: Rio Tinto, Trainline, Hargreaves Lansdown

(Sharecast News) - Analysts at Berenberg downgraded their rating on shares of Rio Tinto from 'hold' to 'sell', telling clients that they believed there was more downside in the shares. The first major negative catalyst would be the miner's first half results on 27 July, they said, due to higher costs at its iron ore and aluminium units.

That was despite its shares having sold-off with the broader sector, having fallen by 16% since the start of June while the Stoxx 600 Basic Resources gauge had dropped 20%.

Their estimates for Rio Tinto's earnings per share were 13% below consensus for the front half of the year and surprise to the downside on the day.

"A precursor to this will be the Q2 operating review on 15 July, which, while likely better than Q1, is still set to bear the marks of challenging operating conditions, particularly in Australia."

In the the same report they also slashed their target price from 6,500.0p to 4,200.0p.

Commenting on wider sector, the analyst said: "The mining sector's weakness has been exacerbated by the weak historical performance of industrial metals during recessionary periods.

"We think the summer period will offer limited positive news, with the recession narrative likely to take hold, and China, which tends to be the key driver of positive sentiment in the mining sector given its dominance in terms of demand for raw materials, is unlikely to materially fire into action until later this year, again offering limited commodity price support over the summer months."

Liberum upped its price target on Trainline on Thursday following the company's trading update and increased guidance a day earlier.

The broker, which rates the shares at 'buy', said Trainline's first four months of trading have performed ahead of expectations, with net ticket sales up 16% versus FY20 levels.

"Trainline provided updated FY23E guidance which at the midpoint points to circa 20% and 30% upgrades to consensus revenue and adjusted EBITDA," it said. "We have upgraded our FY23E forecasts by 15% and 26% respectively."

Liberum noted that Trainline shares closed up 21% on Wednesday.

"Following yesterday's share price move and our change in forecasts Trainline's shares are trading on CY22E EV/Sales of 5.4x.

"We increase our target price to 470p (from 435p) and we believe that the shares should continue to re-rate.

"We see Trainline as the long-term winner in a structurally growing market and the strength of the recovery post-Covid is supportive of this view."

JPMorgan Cazenove cut its price target on Hargreaves Lansdown on Thursday and placed the shares on "negative catalyst watch" ahead of the full-year results next month.

The bank slashed its price target to 770p form 1,060p as it said Hargreaves Lansdown's growth and cost targets look increasingly unachievable in the current macroeconomic backdrop. It also noted that other D2C platforms have already reported a slowdown in activity in the second quarter.

"Apptopia data suggests poor customer acquisition in May and June at HL, and possibly weak net new business (NNB) figures," it said.

JPM said HL's target of NNB of 10%/£20bn in FY26 looked ambitious even before the worsening of the macroeconomic environment. In 4Q, Apptopia data indicates a 40% year-on-year decline in HL mobile app downloads, a proxy for customer acquisition and NNB.

"Whilst we think that Active Savings flows will accelerate, this will be more than offset by the risk of a decline in shares revenues, lower NNB and customer acquisition," it said.