Broker tips: British Airways, Morrisons, De La Rue

9th Sep 2010 10:52

German broker Commerzbank is keen on British Airways after a good roadshow meeting with the airline. BA continues to benefit from a strong market environment and is making significant progress on major issues such as pensions , the merger with Iberia and the transatlantic joint venture with American, the broker says. A target price of 225p does not yet reflect potential synergies from the merger with Iberia, which could be worth about 70p a share. Internal preparations remain well on track with final closure expected in the second half of December. Resulting synergies are still expected to be about €400m a year. The scalable structure of the merged entity, IAG, will also easily allow for the integration of further airlines . As evidenced with the recent release of August traffic data, the market environment remains strong with particularly good momentum in premium as well as non-premium yields. The airline is also in a strong position in its dispute with its cabin crews. The rating is 'add' with a target price of 225p concludes the broker. Panmure Gordon remains a seller of banknote printer De La Rue following Tuesday's revelation that some of its staff had been falsifying paper specification test certificates. The broker has downgraded estimates for both this year and next, but thinks the risk to forecasts remains "firmly on the downside", at least until the final outcome of investigations into the scandal is finished and talks with major clients involved finalised. It worries that, while the issue has so far only affected one client, there is the possibility that others will emerge as investigation into other contracts remain ongoing. Shipment of affected banknote paper was immediately stopped, and De La Rue warns the problems will dent pre-tax profits by at least £35m for the first half of the year. "The bad news is that De La Rue has upset what we believe is its biggest client, and there remains the potential risk of this customer terminating its contract in the near term - a contract we believe is more than significant to the bottom line," Panmure Gordon says. "Customers with renewals and tenders next year could, of course, also follow suit and, at best, we believe there could be material margin lost compared to historic levels. In addition, of course, is an unquantifiable loss of reputation." Its 'sell' rating and 605p price target remain unchanged.Standard & Poor's keeps its 'hold' rating on Morrisons after the supermarket unveiled its first half results. The broker thinks that tough times could be in store for the whole supermarket sector. 'We believe the current, historically high level of promotional activity in the UK is set to continue as businesses compete to maintain customer traffic in the face of sliding consumer confidence ,' the broker said. 'As we move into H2 [second half], price increases in global food commodity markets are likely to be reflected in renewed inflation, and strategies as to how to pass on the cost to consumers will have to be revisited.' The broker thinks that new chief executive, Dalton Philips, will review the company's strategy once he has been at the helm for a while longer. S&P has a 315p target price on Morrisons.