London stocks held their position in the green on Monday, helped by a positive start to August for global stocks and gains for the heavily weighted mining sector, following an improvement in bull ratings by JPMorgan.
The bank’s global equity strategy team moved mining companies from neutral to overweight, commenting that after a period of weakness – 16% from first quarter highs – “the emerging valuation gap over spot price / earnings offers an opportunity to outperform ”.
From the bank’s European mining, metals and steel team, senior analyst Luke Nelson, said earnings to date have upheld “the return on capital benchmarks of diversified miners.” He said the high conversion of free cash flow to dividends is expected to continue thanks to strong balance sheets, limited capital spending and low operating leverage.
“In addition, ESG considerations will likely mean that the corporate strategy is wrong
on the side of caution around growth and mergers and acquisitions, further limiting the potential
drains excess capital, ”Nelson said in an Aug. 2 note to clients. The group’s main mining choices are BHP, Rio Tinto and Glencore, all overweighted.
Rio Tinto RIO,
the share increased by nearly 2%, with BHP BHP,
and Glencore GLEN,
shares up more than 1% each.
Citigroup also released a bullish note on the sector on Monday, with analyst Ephrem Ravi saying the sector has “the potential to reevaluate as underlying commodities continue to perform well and companies increase cash returns to shareholders. “.
stocks climbed more than 4%. Last week, the miner reported significantly higher first-half profit and said it would earn shareholders $ 4.1 billion in dividends and share buybacks. Berenberg analyst Richard Hatch said the earnings exceeded expectations and viewed Buy-listed Anglo “as a compelling growth story with an attractive return angle for shareholders.”
Weighing down in London, shares of Unilever UL,
which fell more than 1%. The FTSE 100 rose 0.6% to 7,079.72.
Among smaller companies, shares of Meggitt climbed 54%, contributing to a 0.8% gain for the FTSE 250 after the British aerospace company agreed to an acquisition by US industrial group Parker Hannifin.
This offer also raised the shares of Melrose Industries MRO,
up 5% and a top winner for the FTSE. The company that buys and improves underperforming companies also has interests in aerospace and defense after buying GKN in 2018, noted Russ Mold, chief investment officer at AJ Bell.
“It would be interesting to see if this predator becomes prey, as Melrose is historically the one who does the bidding,” Mold told customers in a note.