Broker tips: Centrica, Capita, TUI Travel

11th May 2010 12:45

Centrica has done well so far this year as British Gas continues to add more customer accounts and deliver further cost savings, keeping Charles Stanley on side.The UK energy hedge position has been addressed through the transformational acquisitions of Venture and British Energy, creating a more balanced business model with reduced earnings volatility, says analyst Tina Cook.British Gas has already delivered £200m of cost savings and is on track to exceed a further £100m, while improved customer service and greater emphasis on cross selling should help reduce customer churn. There's some general uncertainty about UK energy policy going forward given the hung parliament and unresolved leadership issue. The Lib Dems oppose new nuclear power plants.But despite rallying 26% over the past year, the shares yield an "attractive" 4.8%, another reason for Charles Stanley to retain its 'buy' recommendation.Capita's latest trading update has failed to impress Ambrian, which keeps its 'sell' rating on the outsourcing firm.The company reported strong trading so far this year, but the broker says the statement continues to show historically weak organic growth with limited new contract wins.A hung parliament following last week's general election could delay any new central government public sector outsourcing, but increased competition in back office outsourcing is a more permanent feature, thinks Ambrian."Growth achieved by acquisition or share buyback is no substitute for the strong organic growth needed to support a premium rating such as that enjoyed by Capita."Contracts won in the year to date will only deliver annual revenue of around £65m a year, worth only an incremental 2.4% to the 2009 revenue total, it says.Weakness in the share price of TUI Travel is not justified in Panmure Gordon's view and the broker raises its rating on the company, which owns the Thomson brand, to 'buy' from 'hold'.Panmure notes that TUI's update today reported that trading was improving for summer 2010 and that the operating loss for the six months to March 31 was £314m, against expectations of £320m.The broker, which notes that the company trades at around 9.6 times current year earnings, retains its 325p target price on the group.