Broker tips: Kingfisher, life assurance stocks, Umeco

2nd Jun 2009 13:30

The market has responded positively to first quarter figures from Kingfisher but broker Charles Stanley reckons the jury is still out on the prospects of the DIY retailer, despite upgrading its recommendation on the stock.'A further weather related seasonal bounce is unlikely in 2009 and management continues to plan for a particularly tough balance of the year in its major markets. Increased focus on gross margin, costs and cash generation, however, means it believes the group will be well placed when consumer demand improves,' Charles Stanley analyst Sam Hart said.Charles Stanley thinks the market will focus on the short and medium term on the improvement in trading and has thus upgraded the stock from 'reduce' to 'hold', reversing a downgrade announced on 12 May.Matthew McEachran at Singer Capital Markets is one analyst looking to upgrade his earnings forecasts after today's trading statement. He reckons upgrades will be of a magnitude close to £30m (8%), while Deutsche Bank's back of an envelope figure is for a 10% uplift in profit before tax to £370m.Panmure Gordon has been looking at the life assurance sector with a generally positive eye, though it thinks the time for buying Standard Life has passed for the time being.The broker has downgraded Standard Life from 'buy' to 'hold' in the wake of the share price's significant outperformance of its peers over the past 12 months.The share price gain was driven, in Panmure's view, by the strength of the company's balance sheet in comparison with its peers 'but we think such outperformance is unlikely to continue in rising investment markets,' the broker said.On the sector as a whole, Panmure notes that it has rallied sharply since its recent low point in March but believes there are more gains to come as it bounces back from the share price losses suffered last year.'The announced delay of the mandatory introduction of MCEV until 2011 removes a black cloud hanging over the sector. We have increased our target prices on the large-cap UK life insurers and our preferred plays are Prudential and Aviva,' the broker said.The share price of Umeco, the supply chain management specialist focused on the aerospace and defence industries, took flight on Tuesday, rising in the wake of marginally better than expected results.KBC Peel Hunt believes that the reduction in net debt, '£10m lower than our forecast of £120m' and the extension to June 2014 of the group's $150m loan facility is of greater significance than the profit performance. The broker has upgraded Umeco to 'hold' from 'sell' but has kept its price target at 170p. KBC still foresees a continuing deterioration in the commercial aerospace market in which the company mainly operates and believes that despite the extension of the banking facility, the threat of a covenant breach has not been removed entirely.'The March 2009 covenant test was helped by the move to an average/average test for Net Debt/EBITDA; this will be less of an issue this year,' KBC said. 'Though the recent dollar weakness will relieve some pressure on covenants in the current year, on our existing forecasts, we expect Net Debt/EBITDA to be around 3.0x at the end of March versus a covenant at 3.25x, so the issue has not gone away entirely,' KBC added.