Broker tips: BSkyB, Schroders, Xchanging

1st Feb 2010 12:53

Despite reporting some of its best results in the last year to year and a half, regulatory uncertainty is likely to continue weighing on broadcaster BSkyB, according to broker JP Morgan.The broker thinks BSkyB will, however, continue to perform strongly and raises its target price on the firm to 615p from 605p, keeping its 'neutral' recommendation.Sky has been a 'market performer' despite its good results, a situation that JPM thinks will continue until broadcast regulator Ofcom publishes its proposals on pay TV.'If Ofcom stepped away from its current proposals or a change in government limited Ofcom's powers, this would be very positive for Sky shares, in our view,' the broker said.Ofcom is proposing to force Sky to sell its premium content to rivals at regulated prices.JPM sees several factors lifting BSkyB's share price following the Ofcom decision, which is expected at the end of March, including strong customer growth as it increases its product range and increased revenue from sales of add-on products.Credit Suisse expects a slowdown in inflows at Schroders and has downgraded its rating on the fund manager to 'neutral' from 'outperform.'It expects inflows in the current quarter to fall to £3.7bn from £7bn in the prior quarter and also sees stronger inflows into the lower margin institutional and corporate bond funds. It lowers its target price on the stock to 1,360p from 1,415p.Schroders' fourth quarter results are due on March 4.Shares in outsourcing specialist Xchanging now sit at a discount to the IT services sector after the company experienced a tough 2009, prompting Piper Jaffray to upgrade the stock.The broker is shifting to an overweight position in the stock with a price target of 237p, in anticipation of an improvement in market conditions. 'As well as the absolute increase in contract value signed, improving closure rates on large deals in the industry are encouraging for Xchanging, which needs to win new Enterprise Partnership deals to bootstrap its growth into new end markets. Improving corporate technology spending in the US should also allow Cambridge [Solutions] to begin delivering on the earnings accretion indicated at the time of the deal,' the broker said.'We believe improving deal closure rates and earnings visibility should drive a re-rating from the current level,' the broker concluded.