Broker tips: BG, ARM, telecoms

28th Oct 2009 12:57

Third quarter earnings from gas and oil behemoth BG Group were slightly ahead of expectations, according to Charles Stanley, which has retained its 'accumulate' rating for the stock.'Although Q3 [third quarter] production volumes were slower than expected at +5%, the final quarter is up 12% on Q4/2008 and this together with portfolio developments puts the group in a strong position to show superior growth to other oil & gas groups,' reckons Charles Stanley analyst Tony Shepard.Based on the broker's earnings estimates for the full year, BG trades on a price/earnings ratio of 16 'and its premium rating to the peer group is now at its lowest for some time (e.g. Royal Dutch Shell's FY1 P/E [price/earnings ratio] is 14x),' Shepard notes.Nomura Securities has raised its earnings estimates for ARM Holdings following 'an encouraging set of Q3 numbers' from the chip designer on Tuesday.The broker has increased its dollar revenue estimates by 7% over the next two years and bumped up the 2010 gross margin to 90.7%. 'However, change in our $/£ rate to 1.65 results [in] revised 2010E EPS [earnings per share] increasing by only 4%,' Nomura analyst Dr. Gunnar Plagge notes. 'For 2011, we expect revenue growth of 9% leading to EPS of 7.22p.'The broker has lifted its price target for ARM to 152p.Barclays Capital has initiated coverage of the European telecoms sector with generally positive views of three of the UK's big players.The broker has a price target of 169p for BT, where it sees a chance of rising dividends once the company's cost cutting programme starts delivering. Mobile phone giant Vodafone is 'clearly inexpensive' in BarCap's view. Using its discounted cash flow model, the broker values Vodafone's shares at 168p.BarCap also likes the look of Cable & Wireless (C&W), which it thinks may look to release value to shareholders by reviving its demerger plans. 'We believe C&W offers investors attractive upside potential with positive gearing to an emerging market recovery, exposure to an increasingly benign UK corporate market, and attractive upside in a demerger scenario.'BarCap has a price target of 175p for C&W.