Broker tips: Cable & Wireless, water companies, Holidaybreak

26th May 2009 13:13

Telecommunications group Cable & Wireless has been stuck in reverse since its results last Thursday, which were below many analysts' expectations.Credit Suisse has responded to the disappointing figures by downgrading its earnings forecasts 'to reflect a more cautious outlook and recent currency moves.'The Swiss bank has chopped its price target for C&W from 160p to 135p, and lowered its rating from 'neutral' to 'underperform'.Water companies are firm favourites of income investors but Merrill Lynch warns that in a potentially deflationary environment, shareholders should not be expecting much in terms of dividend growth.Merrill Lynch has cut its ratings on Pennon and Northumbrian Water from 'neutral' to 'underperform' ahead of next month, when the big four UK water companies announce their dividends.Shares in the sector have risen strongly since the beginning of April, without the aid of any positive change in circumstances and the broker believes Pennon and Northumbrian's share prices have risen too far, considering the possibility of bad news in the OfWat review draft in July.The broker's preferred choice in the sector is Severn Trent, but even then the best is can manage is a 'neutral' rating on the stock, with revenue growth likely to be minimal. The benefits from the recent purchase of its Education business have yet to be recognised in the share price at short breaks specialist Holidaybreak, reckons KBC Peel Hunt, which has substantially hiked its price target for the group.KBC has upped Holidaybreak's price target from 244p to 390p following Tuesday morning's interim results.'Our belief is that there will be a growing appreciation for the inherent value of the Education division. Hotel Break trends are encouraging and the market's risk appetite for leveraged companies is also increasing,' concludes KBC analyst Nick Batram, who rates the shares as a 'buy'.