Broker tips: Marston's, Bodycote, Bovis

10th Jul 2009 13:15

The right issue announced last month by brewer and pubs owner Marston's has left a sour taste in the mouths of many shareholders but Charles Stanley advises taking up the rights to avoid dilution.The Independent on Sunday reported at the end of June that a number of institutional investors had criticised the cash call, which will largely be used to finance expansion rather than reduce the company's £1.2bn debt pile.Charles Stanley is an advocate of the company's strategy, however. "We believe that the long term interests of the business would be best served by directing the highest proportion possible of the proceeds towards the new build project thereby ensuring longevity of earnings generation rather than short term debt repayment," Charles Stanley analyst James Dawson said in a research note released on Friday."The group's decision to restart its new build programme appears entirely logical and reinforced by the withdrawal of its major competitors," Dawson believes. The broker has retained its "buy" recommendation but trimmed its price target to 115p from 132p "to reflect the time delay before the proceeds generate returns."Engineering firm Bodycote was the worst performing FTSE 250 stock on Friday morning after issuing a profit warning, but the stock is turning into a highly geared recovery play, Panmure Gordon reckons.The broker has retained its "buy" recommendation on the stock despite the company reporting "a deeper revenue collapse and a severe cost mismatch" in the first half of the year.Panmure Gordon said that the company has a £225m facility which matures in August 2010, "and the refinancing could prove more challenging than expected", leading the broker to speculate that a fund raising may be on the cards later this year.Bovis Homes has dumped its dividend payment but on the bright side "it now looks certain to end the year with net cash", broker KBC Peel Hunt observes.The company is "benefiting from the near-100% cash conversion selling from stock," the broker said, and expects this to continue through the second half of the year. However, the group, which has not been active in buying up land "for the better part of four years" and which has cut down dramatically on building activity will have to ramp up activity at some point.The broker is remaining on the sidelines while it awaits Bovis's next move, and has a "hold" rating and a price target of 340p for the stock.