Author: Fiona Craig

RBC Capital Markets downgraded Hermes (LSE:RMS) to Sector Perform from Outperform and reduced its price target to €1,700 from €1,900, arguing that the superior growth profile behind the luxury group’s premium valuation is becoming less pronounced.

The brokerage expects Hermes’ revenue and EBIT compound annual growth rates to exceed those of its peers by around 2 percentage points from 2027 onwards. That compares with an estimated advantage of 8 percentage points in 2025.

“The growth premium that justified its valuation premium vs the sector is converging,” analysts led by Piral Dadhania said, highlighting the company’s growing dependence on Leather Goods as a source of expansion.

Leather Goods Expected to Drive Majority of Growth

RBC forecasts that Leather Goods will account for 63% of Hermes’ group revenue growth between fiscal 2025 and 2030, compared with 40% during the preceding five-year period.

The increasing contribution comes as growth across the wider business is expected to moderate. RBC noted that periods when Leather Goods have substantially outperformed Hermes’ other divisions have historically been associated with weaker cyclical demand.

That dynamic could leave competing luxury companies better positioned to benefit if demand across the broader sector recovers.

Pricing Contribution Set to Moderate

RBC also expects the contribution from price increases within Leather Goods to become less significant.

According to the analysts, the division has historically generated a consistent annual volume contribution of approximately 6%, while pricing contributed between 6% and 9% annually during the inflationary period following the Covid pandemic.

From fiscal 2027, RBC expects the pricing contribution to fall to between 3% and 4%. The forecast follows recent management comments indicating that 2027 price increases would be “slightly lower than [this year].”

Unless volumes accelerate, the brokerage expects Leather Goods revenue to grow by approximately 9% to 10% annually from fiscal 2027 onwards. That is broadly consistent with consensus forecasts but would represent a sequential slowdown.

EBIT Margin Seen Holding Near 40%

RBC expects Hermes’ EBIT margin to remain broadly unchanged at around 40% through fiscal 2029.

Although that level would continue to rank among the strongest margins in the luxury industry, analysts see limited scope for further expansion following the significant improvement achieved since the pandemic.

The brokerage also forecasts slightly negative incremental return on invested capital, or ROIC, between fiscal 2026 and 2029. That contrasts with expectations for parts of the wider luxury sector, where recovering margins could drive improving returns on capital.

Valuation Leaves Risk-Reward More Balanced

Hermes currently trades at approximately 32 times expected fiscal 2027 earnings, a valuation RBC believes already incorporates much of the company’s superior growth and profitability.

As a result, analysts described the risk/reward as “more balanced” at current levels.

Within the luxury sector, RBC said it favours companies offering stronger valuation support, including LVMH (EU:MC) and Burberry (LSE:BRBY), or businesses with stronger earnings growth prospects, such as Richemont (USOTC:CFRHF).

The brokerage also reduced its fiscal 2027 and 2028 revenue forecasts for Hermes by 1%, while cutting its earnings-per-share estimates by between 3% and 4%. The EPS revisions partly reflect RBC’s assumption of a higher tax rate in the later forecast years.

BHP Group (LSE:BHP) reported a strong increase in earnings for fiscal 2026, with higher copper prices, improved operating performance and stronger cash generation helping lift profit and providing the mining group with capacity to continue funding its growth pipeline.

Underlying attributable profit increased to $13.2 billion from $10.2 billion a year earlier, representing a rise of around 30%. Underlying EBITDA advanced 27% to $32.9 billion.

Revenue reached $58.8 billion, up 15% year on year, supported by stronger realised prices for copper, iron ore and steelmaking coal alongside improved operational performance.

Investors responded positively to the results, with BHP’s Sydney-listed shares gaining 3.6% to $64.41 by 00:42 GMT on Tuesday.

Copper Drives Stronger Earnings

Copper was the standout contributor to BHP’s improved financial performance, benefiting from higher realised prices during the year.

Underlying EBITDA from the copper division climbed to $18.2 billion from $12.3 billion a year earlier, while revenue increased to $29 billion.

The improvement came despite copper production declining 3% to 1.95 million tonnes, highlighting the significant contribution from stronger commodity pricing.

BHP said its balance sheet and cash generation leave the group with substantial capacity to continue investing in growth opportunities across its portfolio.

Dividend Reaches Four-Year High

BHP declared a final dividend of 99 cents per share, taking the total payout for fiscal 2026 to 172 cents per share.

The full-year distribution amounts to approximately $8.7 billion and represents the miner’s highest annual shareholder payout in four years.

The increased dividend reflects the stronger earnings and cash generation delivered during the period while BHP continues allocating capital towards major development projects.

BHP Forecasts Lower Copper Production in FY27

For fiscal 2027, BHP expects copper production of between 1.65 million and 1.8 million tonnes.

The forecast implies lower output compared with fiscal 2026, with declining ore grades at the company’s Escondida operation expected to weigh on production.

BHP also expects BMA metallurgical coal production of between 18.5 million and 20.5 million tonnes during the new financial year.

Jansen Potash Project Approaches Production

BHP continues to advance its Jansen Stage 1 potash development in Canada, an important component of the group’s longer-term growth strategy and commodity diversification.

The project is now 84% complete and remains on schedule to achieve first production in mid-2027.

Progress at Jansen, combined with BHP’s strong balance sheet and cash generation, provides the miner with additional exposure to potash as it continues investing across commodities expected to benefit from longer-term global demand trends.

UK grocery price inflation continued to ease in August, dropping to its lowest level in almost two years and providing some relief for households still facing elevated living costs, according to the latest figures from Worldpanel by Numerator.

Like-for-like grocery inflation stood at 2.1% during the four weeks to 9 August, down from 2.6% in Worldpanel’s previous monthly report and 3.0% in the report before that.

The figures provide one of the most recent indications of consumer spending and food price trends in Britain ahead of the release of official UK inflation data for July on Wednesday.

Food inflation has remained below some of the higher forecasts made earlier in the year. Intense competition between supermarkets, resistance among consumers to further price increases and more effective hedging by suppliers have helped limit inflationary pressures.

Prime Minister Andy Burnham has identified tackling the cost of living as a priority for the new government.

Promotions Account for Almost a Third of Grocery Spending

UK grocery sales increased 2.5% year on year during the latest four-week period, with shoppers continuing to make extensive use of supermarket promotions.

Around 31.3% of grocery sales were made as part of a promotional deal, highlighting the importance of discounts as consumers continue to manage household budgets carefully.

Hot summer weather also influenced shopping patterns. Sales of sun cream jumped 58.4%, while spending on ice cream and sorbet increased 26.1%.

Sainsbury’s Outpaces Tesco as M&S Leads Growth

Over the 12 weeks to 9 August, market leader Tesco (LSE:TSCO) recorded a 1.8% year-on-year increase in sales. However, its share of the grocery market edged lower for a third consecutive Worldpanel report.

Sainsbury’s (LSE:SBRY), the UK’s second-largest supermarket operator, performed more strongly, with sales increasing 3.5% over the period.

Marks & Spencer (LSE:MKS), which is not fully represented within Worldpanel’s data set, remained Britain’s fastest-growing food retailer. Grocery sales increased 15.9% year on year.

Online supermarket Ocado (LSE:OCDO) ranked second for growth, recording a 13.1% increase in sales, while Lidl followed with an 8.5% rise.

Asda remained under pressure, with sales declining 0.2%. Nevertheless, the result represented the supermarket chain’s strongest performance since March 2024.

Lower Inflation Offers Some Relief to UK Households

The continued slowdown in grocery inflation could provide further support for household purchasing power if the trend persists.

However, promotional activity remains an important component of consumer spending, while differences in sales growth between individual supermarkets indicate that competition for market share remains intense.

With official inflation figures due shortly, Worldpanel’s latest data provides an early indication that food price pressures continued to moderate during August.

Oxford BioMedica (LSE:OXB) shares fell 1.3% to 486.5 pence on Tuesday as investors continued to assess the cell and gene therapy specialist’s recently lowered revenue expectations and the implications for its near-term growth.

The shares remain substantially below their 52-week high of 950 pence, despite analysts maintaining broadly constructive longer-term views on the company. Investec, for example, has previously assigned Oxford BioMedica a Buy rating and a 772-pence price target, according to its published ratings history.

The disparity between the current share price and broker targets indicates continued optimism around the longer-term opportunity, although that has yet to provide a significant near-term catalyst.

Revenue Forecast Lowered Following Client Ordering Changes

Investor caution increased after Oxford BioMedica reduced its 2026 revenue guidance on 7 August.

The company now expects revenue of between £180 million and £200 million, down from its previous forecast of £220 million to £240 million.

Oxford BioMedica attributed the downgrade to short-term changes in customer ordering patterns alongside the phased ramp-up of its manufacturing operation in Durham, North Carolina.

The revised forecast has increased the focus on the timing of future client activity and the company’s ability to translate its longer-term growth opportunities into stronger revenue performance.

Durham Expansion Remains Central to US Growth

Oxford BioMedica has been investing in additional US manufacturing capacity as it seeks to expand its position in commercial-scale cell and gene therapy production.

The Durham facility, acquired from Resilience, is intended to strengthen the company’s commercial manufacturing capabilities in the US and provide capacity to meet anticipated growth in customer demand.

Progress at the site is therefore becoming an increasingly important factor for investors, particularly following the guidance reduction. Evidence of a successful production ramp-up could help provide greater confidence in Oxford BioMedica’s future revenue trajectory.

Customer Programme Timing Creates Revenue Volatility

Oxford BioMedica’s financial performance can also be affected by the timing and progression of individual customer programmes.

Projects moving through development and towards commercial manufacturing can result in fluctuations in activity and revenue between reporting periods, making customer ordering patterns an important driver of shorter-term performance.

For now, the shares remain caught between expectations for longer-term growth and more cautious near-term revenue assumptions. While existing analyst targets imply considerable potential upside from current levels, investors may look for evidence that customer ordering is improving and the Durham operation is scaling as expected before taking a more positive view of the stock.

Neo Energy Metals (LSE:NEO) has reached an important regulatory milestone in its plans to acquire and develop the New Beisa uranium and gold project in South Africa’s Free State Goldfields, advancing the company towards its targeted first gold production in December 2027.

South Africa’s minister has granted Sibanye-Stillwater Section 11 consent for the transfer of the Southern Free State mining right, completing the first of three regulatory stages required before Neo can assume ownership of the New Beisa Node.

The brownfield project benefits from more than US$500 million of historic investment and substantial existing mining infrastructure, potentially reducing the development requirements associated with bringing the asset back into production.

Further Regulatory Approvals Now Progressing

Following the Section 11 approval, Section 102 applications are being processed to separate the New Beisa area from Sibanye-Stillwater’s wider Beatrix operations.

Neo is also preparing its own Section 11 application, which represents another step towards completing the ownership transfer.

In parallel, the company has entered into an access agreement enabling it to begin a self-funded assessment of the site while the regulatory process continues. This work is expected to help Neo advance its development plans ahead of taking control of the asset.

The company remains focused on achieving first gold production in December 2027, with uranium production expected to follow.

New Beisa Targets Uranium and Gold Production

New Beisa is being developed as a combined uranium and gold operation, with initial plans targeting annual production of approximately 810,000 pounds of uranium and 52,000 ounces of gold.

Based on current measured and indicated resources, the project is expected to support a mine life of around 17 years. Neo is also targeting low all-in sustaining costs, supported in part by the extensive infrastructure already established at the site.

The combination of existing facilities, historic investment and exposure to both uranium and gold forms a central part of Neo’s strategy for developing New Beisa into a significant South African mining operation.

Henkries Provides Second Uranium Growth Platform

Alongside New Beisa, Neo is advancing its Henkries uranium project in South Africa’s Northern Cape.

Henkries is a near-surface uranium deposit with an established processing route. A 2024 feasibility study outlined potential annual production of approximately 260,000 pounds of uranium at cash costs of around US$40 per pound.

The study estimated an NPV of US$15.1 million and an internal rate of return above 15%, with initial capital expenditure of approximately US$65 million.

The project provides Neo with an additional development opportunity as it builds a broader portfolio of uranium assets in South Africa.

More about Neo Energy Metals

Neo Energy Metals is a uranium and gold development company listed on the London Stock Exchange and A2X, with a Johannesburg Stock Exchange listing targeted for 2026.

Its two South African projects contain combined compliant resources of 31.5 million pounds of uranium and 1.2 million ounces of gold.

Through the development of New Beisa and Henkries, Neo is seeking to establish itself as an emerging producer with exposure to South Africa’s established uranium and gold mining regions.