Broker tips: Bovis, Spectris, Dixons

14th Jan 2011 13:05

While Bovis Homes has beaten consensus for 2010, broker Peel Hunt says that "almost anything is better" in the housebuilding sector as the shares are too expensive in comparison to its peers.On Friday, the group stated that margins will be at least 7%, more than half a percentage point better than previous guidance, meaning an upgrade in 2010 pre-tax profit from £16m to £18m for the broker. Earnings per share will be increased from 8.4p to 9.5p. However, Bovis's "relative valuation within the sector remains a problem," says analyst Robin Hardy, as its return on capital employed (ROCE) looking forwards to 2012 is poor at between 4% and 5%."By 2012 we see Persimmon making close to 8-9% ROCE," adds Hardy, reiterating that "everything else in the sector is better value."The broker confirms a 'sell' rating and places the target price of 200p under review.A strong end to the year for Spectris has prompted Panmure Gordon to review its numbers, as earnings and debt levels were better than expected.The instrumentation and controls specialist gave a bullish trading statement on Friday, with expected earnings before interest and tax for 2010 15% ahead of last year to £140m, 7.5% above of Panmure's expectation of £130m.Meanwhile, year-end net debt was below £100m, £20m below the broker's forecast."The strong close was helped by a catch-up in Test & Measurement, and in particular by some revived business with auto customers in Europe and the US," said analyst Oliver Wynne-James.While the broker reassesses its projections, a 'buy' rating and target price of 1,480p are maintained. Nomura has been prompted to downgrade Currys and PC World owner Dixons' medium-term forecasts after poor Christmas trading, but still sees some upward potential in the share price.The electrical retailer reported a 4% decline in UK like-for-like sales in the third quarter, but the broker says that this was a "reasonable performance given a 2% snow-related negative impact and a market that was down 8% in the period."The broker downgrades its predictions for earnings before interest and tax for fiscal year 2010-11 from £100.7m to £82.9m, resulting in a 2.1% margin. "Although we have confidence in the medium-term renewal and transformation plan, and delivery of 3-4% margin targets, we forecast that these are likely to be pushed back by a year given the continued weak macro outlook for 2011/12 and recent trading pressures," says analyst Mark Howden.With a lack of short term catalysts as margin targets are pushed out, the broker says Dixons' share gains remain strong, retaining its 'buy' rating. Target price is reduced from 49p to 38p.