Broker tips: Bodycote, Rockhopper, C&C

13th Oct 2010 13:01

Brokers are scurrying to bump up their full year earnings estimates for Bodycote after a strong third quarter update from the engineering firm.Improved operating profit has forced FinnCap to increase its estimates, adjusting pre-tax profit from £34.1m to £41.1m, bumping earnings per share up 20% from 13.3p to 16p.FinnCap has also increased its 2011 forecasts for the UK company by £10m to £53.3m, with a 4p increase in earnings per share to 21p.Bodycote noted that operating profits for the year are now expected to be towards the upper end of the market range. With FinnCap at the lower end of that range it had little option but to "significantly increase" its forecasts."Momentum appears to have returned to nearly all the group's main markets and its historically strong operational gearing is coming into play," the broker said as it increased its target price to 318p and reiterated its "buy" recommendation.Panmure Gordon is also a buyer of the stock and though it only raised its earnings before interest and tax forecast for 2010 to £47.2m a week ago "we believe that there may be yet further upside", the broker said. The broker has a 345p target price for the stock. Operating on a global scale, Bodycote serves a range of industries including aerospace, defence and construction. "Automotive momentum has continued, trucks are strong, and there are early signs of a pick up in the higher margin Aerospace & Defence work," noted Panmure analyst Oliver Wynne-James ahead of Bodycote's conference call with investment analsts.The old saying of 'what goes up, must come down' appears to apply to Falklands oil explorer Rockhopper Exploration but Westhouse Securities thinks Wednesday morning's 14% fall was an over reaction.As a result of a delay in a new competent person's report due to limited available data the company said that resource estimates from June would most likely be reined back by about 30%.That sent the shares diving below 400p, though that is still ten times the level they were at in early May. Westhouse has cut its target price to 495p, based on a more conservative resource estimate of 170m barrels for Rockhopper's Sea Lion prospect."We believe that there remains significant upside associated with Sea Lion, which will be unlocked following additional work, not least of which will include additional 3D seismic and drilling in 2011. Other prospective areas within Rockhopper's acreage are also likely to be highlighted by the proposed 3D seismic programme," the broker believes."Mitigating near-term gains, however, will be the requirement to raise additional funding associated with the proposed drilling contract extension. The amount needed will depend on whether other operators in the basin are included, as was the case with the current Ocean Guardian programme, and the mix of exploration and appraisal wells that will be pursued," Westhouse added.The broker is sticking with its "buy" recommendation for the shares.Nomura Securities thinks that the business model of Magners cider maker C&C has been strengthened by the company's recent mergers and acquisitions (M&A) activity, but the operating environment for the company remains challenging."With the integration of the acquired Gaymers and Tennent's assets implemented with minimal business disruption, and the sale of the spirits asset, we believe the company's business model has been strengthened substantially in what remains a tough consumer environment," opined Nomura analyst Ian Shackleton.Shackleton thinks the company will focus on growing the profitable core Magners brand on the UK mainland which should provide longer term benefits, but the broker is advising its clients to hold fire on buying the shares given the tough operating environment in the Republic of Ireland and the UK."We would wait for more concrete signs of delivery before turning more positive," the broker said in a note that reiterated its neutral rating and €3.40 price target.More M&A activity could be on the way, Shackleton reckons. "With a strengthened balance sheet, we see scope for bolt-on deals up to €450m for a cash consideration, which we believe the market would likely warm to," the broker said.