Broker tips: BAE Systems, Old Mutual Group, Coca Cola HBC

8th Nov 2013 14:25

Investec downgraded its rating of BAE Systems from 'buy' to 'hold' amid concerns of the over a Saudi jet fighter deal.The broker said it worried negotiations over a Saudi order for 72 Typhoon jet fighters, known as the Salam deal, could fall through."BAE remains relatively inexpensive, while continuing to offer an attractive yield," said Investec analyst Chris Dyett."However, as we near the end of 2013, we are increasingly concerned that the Salam pricing agreement slips through yet another year end (which would have a major impact on CY13E EPS and cash) and that there is a lack of near-term positive catalysts."The defence, security and aerospace company is also slashing 1,775 jobs at shipbuilding yards in Scotland and England.Coca Cola HBC managed to compensate for soft volume growth in some emerging markets thanks to its cost-cutting efforts in the third quarter.However, difficult trading conditions continue to put pressure on CCH's volumes, removing any upside catalysts, and consensus expectations are already pricing in a 60 basis point improvement in margins in fiscal year 2014 Barclays Research explained to clients on Friday morning.Their analysts see 55 basis points of margin improvement next year, largely driven by cost efficiencies, following a 10 basis point gain this year.As regards volume growth, trading remains tough, the company explained, and particularly so in Hungary, Romania and Ukraine. Furthermore, for next year the broker now sees volumes growing by 1%, instead of the 2.5% rate estimated before and this year's 2% fall. Given the above and the fact that shares are trading at a price-to-earnings multiple of 22.7 Barclays opted to downgrade the company's shares to equal-weight, from overweight, with a target price of 1,825p (down from 2,000p)."While this is an impressive turnaround we see little risk of any outperformance given the still uncertain trading conditions across CCH's footprint", the broker concluded. Old Mutual's Group Operating Officer, Paul Hanratty, revealed positive signs in South Africa whilst speaking at an event hosted by Barclays on Thursday evening. In that regard, shareholders can expect to begin to see value appear from its operations in the rest of Africa within the next five years, Hanratty said. The group revealed that the goal to double earnings from UK operations to £300m by 2015 is looking very achievable. The initial public offering (IPO) of its US asset management business is on track, the company went on to say, with the proceeds to be deployed to pay down debt. "The US asset management business has now seen three consecutive quarters of net inflows, the main metric that the business had to show making progress in order to have the option to IPO," the broker explained.The IPO has been speculated upon for some time now, but Hanratty gave a very clear message that the IPO is not only being considered, but that the time to make a decision on it is now approaching, Barclays said.Barclays opted to retain their overweight rating on the stock. AB