Market Report: Miner Hochschild climbs on cost cuts

 

The City isn’t known for penny-pinching, but news that a mining company was taking control of spending, slashing bosses’ pay and culling the number of executives sent it to the top of the mid-tier index.

Punters welcomed the news that the Latin American precious metals specialist Hochschild Mining’s executive chairman will take a 30 per cent pay cut and its chief executive’s salary will be slashed by 10 per cent.

It will reduce its board from 10 to eight with Rupert Pennant-Rea, a former Bank of England deputy governor, and Fred Vinton, ex-boss of the private equity firm Electra Partners, to step down.

The Peruvian businessman Eduardo Hochschild has a 53 per cent stake in the group, and is the executive chairman. The company, which listed in London in 2006, was founded by his great-uncle in the early 1900s.

The cost-cutting plan has been put in place to combat continued weak precious metal prices and falling demand. The price of gold fell the most in 30 years in April, and Hochschild joins a number of gold miners that have been trying to cut back to deal with the current outlook.

It has begun a valuation review of its assets which is due to be revealed next month. It unveiled its second-quarter update yesterday, and Nick Hatch, analyst at Westhouse, said: “Hochschild’s production results were essentially in line with our expectations and company guidance.” But he still rated it a sell with a 150p price target.

For now, punters were buying in to the story of a future leaner business, and it uncovered a 10.1p gain to 146.2p.

The mining sector in general was in favour after a run of positive updates from Fresnillo, BHP Billiton and Rio Tinto on Tuesday. Mexico’s Fresnillo added 26p to 1,042p.

The benchmark index got a boost after lunch when the US Federal Reserve chairman, Ben Bernanke, said the tapering of QE is “not on a preset course”. But the FTSE 100 failed to make any substantial gains and only managed a rise of 15.58 points to 6,571.93.

Traders were keen on retailers as the continued hot weather boosted food sales. Marks & Spencer took the top spot, up 13.1p to 473.6p.

Tesco was one of the biggest risers after an update on sales data for the supermarket sector. Analysts at Oriel Securities said they are “hopeful that the work behind the scenes at Tesco (which is tangible), starts to gain traction with customers”. They rated it a buy, and the shares managed to deliver a 6.75p rise to 362.2p.

Things weren’t as bright for the engineer Smiths Group. It reported contract cost overruns and lost 14p to 1,377p.

Analysts talked down the impact of India’s planned liquidity tightening on the bank Standard Chartered. Investec’s analysts said: “We remain somewhat incredulous that it remains such a popular focus of bear concerns.” They rate it a buy, and the shares recovered 3.5p to 1,507p.

The mid-cap computer specialist Micro Focus International agreed to a new $420m (£278m) banking facility, which will be used in part to repay outstanding debt. The shares rose 15.5p to 765.5p.

The insurer esure lost 15.5p 312.5p. Analysts at JPMorgan still rate it a buy but highlighted how the coming regulatory review of the sector could hit sales.

Scribblers at UBS, in the mood for a holiday, raised the tour operator Thomas Cook from neutral to buy. They think the group, run by Harriet Green, has made progress on its top and bottom line, and raised their price target to 180p for shares that travelled up 3.9p to 146.5p.

Punters’ nerves were calmed when Aim-listed Sound Oil found gas at its Nervesa site in Italy. Analysts at FirstEnergy said that although a proper technical review is still to come, “it appears sufficiently large to deliver important cash flows” and “funding alternatives for the 2014 drill programme”. Sound Oil jetted up 1p, or 9.2 per cent, to 11.88p.

Rumours of a drilling update in Texas helped Pantheon Resources up 0.88p to 17.75p.

Berjaya Philippines, a Philippines leisure, gaming and hotel specialist, made a 130p-a-share offer for the luxury car specialist HR Owen, valuing it at £32.5m. Berjaya has been building a stake in the group, and HR Owen drove up 9.5p to 129p.

Buy

RSA Insurance

Snap up shares in RSA Insurance, Citi advises. The broker thinks the RSA is on a “clear path to earnings growth”, and upgraded its rating to buy because it thinks the insurer can “generate earnings growth through improving underwriting profitability”, and its “geographic diversification  of profits” makes it attractive. Citi gives a 146p target for shares that are 128p.

Sell

Ocado

Dump shares in the online grocer Ocado, Oriel Securities suggests. The broker says the entire supermarket industry is having a very tough time of it, and the latest Kantar Worldpanel data suggest that even though the hot weather may have encouraged sales more recently, “the last weeks of June were fairly uninspiring against an easy comparative”. It rates Ocado a sell and says “after the sector’s decent run, there’s  nothing here to kick it on again”. It sets a 125p target for shares that  are 321p.

Hold

Derwent London

Hang on to the property company Derwent London, Jefferies suggests. The broker thinks the London-focused group’s issue of £175m five-year convertible bonds will “increase flexibility and firepower  at a time when activity levels across the portfolio are high”. It rates the shares, which are currently at 2,460p, a hold.

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