Broker tips: Imperial Tobacco, Sainsbury, Bovis Homes

21st Mar 2012 11:29

Nomura has reiterated its neutral rating and 2,150p target price for Imperial Tobacco, despite the group's new sales-led growth strategy."We fail to see Imperial's new sales focus having the impact required in terms of re-invigorating the top line, and believe this will likely become evident with softer-than-expected 2012 volumes," the broker said."Despite these fundamental pressures, we also see these as making Imperial more susceptible to a take-over, and with increased speculation surrounding this possibility likely to support the multiple from here, we see no value in being underweight at this current time." Jefferies has maintained its hold rating and 310p target price for the UK's third-largest food retailer, Sainsbury, saying that it has the highest leverage/multiples and the lowest return on capital employed (ROCE) relative to its peers.It says that with increasing densities the key to margin expansion, there is little upgrade potential for now, making sector peers Morrison and Tesco more attractive, trading at a 15% discount on 2013 earnings with sharply lower leverage."A more ROCE-disciplined approach to investments could improve the attraction," the broker said.Shares in Bovis Homes were performing strongly on Wednesday morning after UBS raised its target price on the house builder by nearly a fifth; however the broker did maintain its sell rating on the stock on valuation grounds."Bovis should see substantial increases in profitability over 2012-14E as new, more profitable outlets are opened and legacy low return land is sold," UBS said. It forecasts pre-tax profit growth of 63% and 49% in 2012 and 2013, respectively, from a low base. With UBS raising its pre-tax profit forecasts by 5% for 2012-15, the target price is lifted from 395p to 465p.However, the broker notes that returns are "still behind the pack" - "we only see the return on capital employed [ROCE] meeting cost of capital in 2014E". BC