Broker tips: BT, WPP, Arm Holdings

12th Jun 2009 13:26

The share price of telecoms giant BT has taken a battering this year but Merrill Lynch believes the shares are now low enough to be worth buying.The US broker reckons that the problems at the Global Services arm and the worries over the company's pension deficit are factored into the share price. Adding to the optimistic picture for the stock, the company has cost savings in the pipeline while the recent ruling by telecoms regulator Ofcom on the prices BT can charge rivals for using its lines was favourable to the former state-owned telecom firm.The broker has raised its price target for the stock from 110p to 130p and upgraded its recommendation from 'neutral' to 'buy'. Merrill Lynch's forecast for earnings before interest, tax, depreciation and amortisation (EBITDA) for 2010/11 has been upped by 2% to £5.6bn, while EBITDA for 2011/12 is now forecast to hit £5.73bn, an upgrade of 3% on Merrill's previous estimate.The 6.7% drop in like-for-like sales in the first four months of 2009 announced by advertising and marketing giant WPP last week has not deterred Goldman Sachs from adding the stock its conviction buy list.Goldman Sachs (GS) said that although WPP's sales figures were bad, they could be close to bottoming out, as businesses begin to ratchet up marketing spend in the second half of the year to coincide with an expected revival in the economy.Barclays Capital has started coverage of microchip designer Arm Holdings with a positive view of the company, which it reckons is well placed to thrive in the semiconductor sector over the long term.'In addition to continuing to generate good growth from the mobile market, Arm's fundamentals will increasingly be driven by share gains in new end-markets, not just the oft-discussed netbooks but also microcontrollers, consumer electronics and storage,' BarCap said.Though acknowledging that the recent revival in the value of sterling will act as a drag on top-line growth, it still expects Arm to outperform the sector.BarCap has an 'outperform' rating on the shares and a price target of 120p, and is advising clients to 'take advantage of any foreign exchange-related weakness in [the] shares.'