Broker tips: Centrica, Dana, Avingtrans

8th Sep 2010 12:22

Nomura Securities has issued a 'buy' note on British Gas-owner Centrica, and believes the market is undervaluing the group's prospects in the rapidly developing UK home services market."In conjunction with Delta Energy and Environment we have carried out an in-depth review of the Home Services market in the UK. We conclude that Centrica's Home Services division is well placed to at least meet internal targets of nearly doubling EBIT [earnings before interest and tax] by end-2012," Nomura analyst John Musk revealed.As a result of its research the broker has upped its valuation of the enterprise value of Centrica's Home Services division to £5.4bn from £3.3bn previously. Market consensus is £3.1bn, Nomura states."In our view, Centrica is well positioned to capitalise on the rapidly developing energy services market through its scale in energy supply and its brand, its expertise and its broad and innovative home services offerings," Musk said.The company has other competitive strengths, too. "We also believe Centrica has a sustainable advantage in supply that will sustain market-leading margins. We see growth in the US, Business Supply and Upstream EBIT as well as a strong balance sheet and limited political/macro risk," Nomura concluded.The broker has a 410p target price for the stock.Dana Petroleum continues its energetic efforts to persuade its shareholders to reject the bid approach from the Korean National Oil Corporation (KNOC) but some of the logic applied in its 'value-based defence' document issued on Wednesday looks a bit suspect to Westhouse Securities.Dana said that based on an independent expert's asset valuation the company is worth between 2270p and 2465p per share, factoring in the acquisition of certain Petro-Canada UK (PCUK) assets, completed today."In some ways, Dana has weakened its argument that the independent assessment is a truer measure of value than KNOC's offer, by suggesting that the PCUK deal it has just completed for £240m is actually worth £368m. This is understandable, and common in the industry, yet transaction values often provide a clearer sense of value given that they represent what a buyer is required to pay in a competitive market: in this case £240m rather than £368m," the broker said.Westhouse continues to advise Dana shareholders to sell their shares in the market, where they trade a little above KNOC's 1800p cash offer. House broker FinnCap was touting precision engineer Avingtrans as a recovery play on Wednesday morning after the company released in-line full year results.The management took decisive action during the recession and the broker maintains that "new contract orders are evidence that diversification and new customer gains should propel sales in the current year."Most of the benefit of the new orders will start to feed through in fiscal 2011. "The group's exposure to the MRI [magnetic resonance imaging] scanner market is now improving as are trading conditions in civil aerospace, where we expect strong growth over the next few years, particularly from China," FinnCap analyst David Buxton said.The broker reckons trading conditions have turned the corner and though this is beginning to be recognised in the form of the recent outperformance of the shares, the stock still trades close to historically low levels and "well below highs achieved before the recession.""We believe there is considerable scope over the next two years for the shares to appreciate and reflect a return to earnings growth we also see some scope to rerate the shares versus their industrial engineering peer group," the broker said.It rates the shares a "buy" and has a price target of 58p.