Broker snap: UBS downgrades Reed Elsevier after strong run

1st May 2013 10:22

UBS has downgraded its rating for publishing and information business Reed Elsevier from 'buy' to 'neutral' given the stock's recent outperformance.In spite of limited upgrades, the broker said that Reed Elsevier has outperformed the market by 25-35% since the middle of 2012. "We had often suggested that this long awaited outperformance was feasible given a depressed valuation and a lack of appreciation for the transformation under way. "The recent rerating, however, suggests the benefits of this transformation are now more widely recognised and we downgrade to 'neutral'."UBS said that the market now appears to have recognised the scope for improving the profitability of its Legal division, though margin expansion above current forecasts could be difficult in the near term.Meanwhile, the broker said: "Earnings per share (EPS) upgrades from other divisions may also be elusive near term and recent management commentary makes larger disposals or buybacks not linked to asset sales unlikely."The stock trades at 13-14 times 2013 EPS, "one of the more expensive of the publishers and re-establishing its premium versus the market", UBS said.The target price has been cut from 790p to 770p.The stock was down 2.86% at 730.5p by 10:42 on Wednesday.BC