Broker tips: Centrica, Chi-Med, IG Group

10th Dec 2010 13:29

Although estimates have been scaled back, Nomura retains its positive stance on Centrica as the company is best placed to benefit from the changes of the energy and home services industry.The broker maintains that the utility group will be its top pick in 2011, as it will be able to adapt from UK supply being altered from a commoditised energy supply market to an energy and related home services market.However, analyst John Musk notes that Centrica has been challenged by the current economic environment as it has faced aggressive price competition. Therefore, the broker now expects targets in home services to be reached one year later in 2013.While its earnings per share forecasts have been trimmed by 2-4% for 2011, the broker says the "valuation still stacks up", as it continues to expect the group to deliver a growth rate of 10% in earnings per share over the next five years along with strong cash flows.Despite forecasting a delay in growth, Nomura remains a 'buyer' of the stock, and confirms a target price of 395p.Panmure Gordon is in favour of Hutchison China Meditech's (Chi-Med) increase in ownership of its subsidiary, and likes Chi-Med's location in a rapidly-growing market.The China-based healthcare and consumer products group announced Friday that it has paid $2.7m to indirectly increase its holding effectively from 37.5% to 40% of its subsidiary Hutchison Baiyunshan (HBYS).With the Chinese consumer healthcare market currently growing at more than 15%, robust growth is expected in the industry in the coming decade.The broker says the current valuation of Chi-Med does not reflect the combined value of the company's business, re-iterating its 'buy' and price target of 600p.While many of IG Group's markets have extended growth, finnCap thinks the key markets in terms of achieving earnings upgrades are Japan and the US.The spread-betting company's pre-close revenue guidance released Thursday is line with the broker's expectations with UK revenue rising by 4%, Australia by 3.6% and Europe by 24%.However, finnCap highlights that the group's operations in Japan "struggled with regulatory change and a goodwill impairment has become unavoidable."Japanese revenues are now likely to run at one third of pre-acquisition levels, and the broker says that the goodwill element of the £117m acquisition of 87.5% of forex trading and CFD provider FXOnline "needs to be reviewed."Additionally, following the regulatory approval for US retail-orientated exchange Nadex, analyst Duncan Hall says the next 12 months therefore "become important as to the rate of uptake but IG is confident that its products are attractive relative to over-the-counter FX trading". The broker retains its target price of 520p "leaving the shares a 'hold' at current levels, pending US progress for 2012".