Broker tips: GKN, Aviva, Max Petroleum

5th Jul 2012 12:06

Investec has reiterated its 'buy' recommendation for engineering group GKN after the news that it has agreed to acquire Volvo Aero."The acquisition of Volvo Aerospace has been announced on terms that are better than anticipated in the media," the broker said in a research note on Thursday."Compared to some predictions, the cost (enterprise value) of £633m is lower, the equity raise is lower (5% placing), expected returns are higher (return on invested capital, with operating margins to be boosted by c£25m of cost savings)."Jefferies has maintained its 'hold' recommendation and 281p target price for insurance group Aviva, saying that new strategies are going to take some time to enforce."Management has done what it can but the scale of the task ahead is significant and will take time. This is at least a two-year turnaround story with economic capital likely to remain below target during a volatile macro period," said analysts at Jefferies."We would have preferred more detail around securing this volatility and divisional detail on where economic capital resides, but we think expectations were carefully managed and McFarlane comes across well."The temporary suspension of Max Petroleum's NUR-1 well has prompted Merchant Securities to reduce its target price on the stock by 16 per cent, from 5.0p to 4.2p.Merchant analyst Brendan Long said: "We had incorporated a 10% chance of operational success at Nimrod into our 5.0p target price (coupled with a 29% chance of geological success). We now believe it is appropriate to reduce our valuation for NUR-1 to nil.""Due to the considerable operational and financial risk associated with the company, we have not ascribed a buy rating even though our target price is above the current market price. In light of the uncertainty surrounding the company, we maintain our 'hold' recommendation and draw investors' attention to the inherent risks," Long said.BC