Broker tips: Grafton Group, Morgan Advanced Materials, Wood Group

12th Nov 2015 14:32

(ShareCast News) - Grafton Group issued a disappointing trading statement, but things should not be taken out of context, a top broker said on Thursday.Indeed, the builders merchant and DIY retailer may have an ace up its sleeve when compared with rivals, as the Irish recovery will remain a key (and unique) driver of profits, Numis believed.Even after reducing their estimates, analysts Howard Seymour, Chris Millington and Christen Hjorth expected the company to clock annual profit growth of about 15% in 2015 and 2016. The UK market backdrop was also expected to improve."We therefore retain our view that Grafton has the best growth profile in the general merchanting space, and would use any weakness on this trading statement to increase holdings in the shares," they said in a research note sent to clients.The balance sheet remained strong, Numis added.Seymour and his team upgraded their recommendation on the stock to 'buy' from 'add' and set a target price of 850p. The deeper-than-expected global slowdown forced analysts at Investec to revisit their forecasts for Morgan Advanced Materials, but they reiterated their underlying upbeat view on the company's prospects.Despite the advanced materials manufacturer's considerable diversification, both geographically and by end-market sectors, weakening confidence in North America - a major trading region - was affecting a broad range of its markets, analyst Michael Blogg said in a research note sent to clients.Notwithstanding that de-stocking might lie behind the weakness in markets such as consumables for the rail industry or auto components, "further adjustments are needed," he said.Blogg said he expected consensus estimates for operating earnings on an EBITA basis to be lowered by between 5-10% as a result of the firm's cost reduction measures.The analyst placed his target price 'under review' but stuck by his recommendation to 'buy'. Wood Group was under pressure after Exane BNP Paribas downgraded the stock to 'neutral' from 'outperform'.The bank said it has been a big fan of Wood Group for some time.It noted the shares have materially outperformed the European oil services peer group over the last two years, on good cost control performance and the lower risk aspects of the company's business model."However, we can't ignore the looming risk to 2016 numbers, and the elevated valuation versus recent history perhaps offers less scope for disappointment than for the last two years."