Broker tips: HMV, water firms, insurers

27th Nov 2009 11:39

HMV has been benefiting from the demise of competitors and is likely to continue doing so, says the broker Charles Stanley as it keeps its 'buy' rating on the music, film and video game retailer.Charles Stanley is not signed up to the scepticism about HMV's long term prospects expressed by other observers.'Based on our analysis, our conviction is that HMV is positioning itself well to be amulti-channel brand in music, film and video games,' it says.It sees the firm as well placed to grow revenues, profits and market share. It also sees the firm as good value, trading at eight times earnings and with a 6.5% yield and keeps its 'buy' stance and 160p target price on the stock.Evolution Securities has downgraded its recommendation on Pennon and Northumbrian from 'buy' to 'add' as it thinks the water firms face greater regulatory risks despite the relaxation of Ofwat's determination on how much they can charge customers over the next five years.Evolution thinks the firms will very likely be able to maintain dividend growth of 3% between 2010 and 2015, unlike peers Severn Trent and United Utilities, which will need dividend cuts of 12% and 25% respectively in 2010/11.All the same, Evolution keeps its 'buy' ratings on Severn and United. It thinks the two stocks will not need to launch rights issues, as had been feared previously.Ofwat said yesterday that average annual bills will have to fall by £3 to £340 between 2010 and 2015, which is more favourable to the water companies than the £14 a year price cut to £330 suggested in July.Most of the threat from the latest Solvency 2 proposals is unjustified and is unlikely to materialise, says Nomura, leaving it upbeat about prospects for UK insurers.The broker notes growing industry and political opposition to Solvency 2, a fundamental review of the capital adequacy regime for the European insurance industry."We believe investment opportunities exist in areas where compromise is starting to appear, the main example being UK annuities," it says.Nomura maintains its 'buy' stance on Legal & General, Aviva and Prudential, the three stocks it thinks are most exposed to this issue, with its price target on L&G raised to 125p from 115p.