Broker snap: Earnings upgrades due at Cookson

10th Nov 2009 12:56

The share price of Cookson rose by almost one-tenth on Tuersday morning after the engineer and ceramics group said it expects trading profit this year will be at the upper end of market forecasts.Not surprisingly, Altium Securities saw no reason to adjust its 'buy' recommendation for the stock, and sees further scope for earnings upgrades in the next 12 months if there is continued improvement in Cookson's end markets.The debt figure of £471m took some by surprise, however. Altium said the figure was a 'negative', although the group remains within covenants and should remain 'comfortably' so over the next year 'as a result of the increase in operating profits.''The surprise is the debt number which is higher than we expected, almost being a victim of its recovery success as working capital has been dragged back into the platform,' notes Evolution Securities, which has upped its price target for Cookson from 325p to 375p and is busy working on a new set of earnings forecasts, though it retains its 'reduce' recommendation.'It [the recommendation] is a relative call rather than a structural call with the main factor being the balance sheet which we feel limits the company's recovery optionality in the medium term compared to stocks such as Invensys and IMI,' Evolution analyst Harry Philips said.Completing the spectrum of views, Panmure Gordon has reiterated its 'hold' recommendation for Cookson. 'Revenue growth is returning to Cookson. This is a cause of celebration, and allows the financial covenants to be met. Simultaneously however the demand for working capital has taken off and this takes the edge off this cyclical event,' opines Panmure analyst Oliver Wynne-James.The broker has a target price of 460p for Cookson.