Broker tips: GKN, Petrofac, Home Retail

20th Oct 2011 12:53

GKN's shares were on the retreat on Thursday, following yesterday's strong rise after its third quarter statement, but Credit Suisse still maintained its outperform recommendation on the stock saying that investment case remains intact."Our forecasts discount 12% year-on-year organic revenue growth in 2011E falling to low single digit in both 2012E and 2013E and in line with our low growth scenario for the sector," Credit Suisse said.However, the broker said that the risk/reward balance for GKN is still attractive as the stock trades at a 30% discount to the sector, compared with an average 13% over the last five years.A 185p target price is retained.Evolutions Securities has kept its add rating on oil and gas facilities provider Petrofac, saying that while today's statement contained very little new information, the new deal it announced is a "significant step forward".The firm said that it would deploy its floating production facility (FPF1) in the North Sea, selling an 80% interest, getting a five-year duty holder contract and its Integrated Energy Services (IES) division obtaining a 20% interest in Ithaca Energy's Greater Stella Area development project."The FPF1 deal is a typical Petrofac innovative deal - swapping an interest in a 'hard' asset for an interest in an upstream development giving Petrofac shareholders leverage to the resource upside," said analyst Keith Morris.The broker kept its target price at 1,700p.Nomura has kept its reduce rating and cut its target price for Argos and Homebase owner Home Retail, saying that rising costs and the outlook are an ongoing concern.Nomura now expects full-year costs to be around £20m higher than last year due to underlying cost inflation as well as initiatives at Argos, "thus limiting the group's ability to offset macro-related trading weakness, which appears to have continued into Q3."These costs, along with gross margin pressure and a subdued start to the second half, have prompted the broker to cut its full-year pre-tax profit estimate by 18%. As such, the target price comes down from 130p to 110p.BC