Broker tips: National Grid, Babcock, De La Rue

17th May 2011 12:39

While Nomura raises its estimates for power and gas grid operator National Grid (NG) ahead of the group's full-year results due on Thursday, the broker says that many positives are already priced in to the stock, and leaves its 'neutral' rating. The broker notes that NG has been a notable outperformer in 2011, with the share price up 13% in the year-to-date, "outperforming the wider European utilities sector by 11%."Nomura highlights three main factors of this outperformance: earnings momentum; optimism on a potential US disposal; and a supportive macro environment ("with falling bond yields helping NG"). As a result the broker raises its earnings per share forecasts for the year ended March 2011 by almost 7%, and its target price by 18% from 570p to 675p.With an accelerating pipeline, engineering support services group Babcock International has had its target price raised by Peel Hunt, who says the share remain a 'conviction buy'."While FY2011 [fiscal year-ended 2011] profit before tax was 2% ahead of our expectations and debt 2% lower, the highlight in our opinion was the further increase in the pipeline (up 70% since November 2010)," according to analyst Christopher Bamberry.The broker increases FY2012 estimated earnings per share by 3% to 60.6p. As a consequence, the target price is hiked to 735p, from 675p previously.UBS upgrades banknotes and passports printer De La Rue to a 'neutral' rating, from 'sell', on the increasing likelihood of another bid from French technology company Oberthur.In January, Oberthur said it would not make an offer for the company following De La Rue's swift rejection of a 935p-a-share bid. Even so, the group is restricted from bidding until 24 July.However, after press reports that the French company may sell a 60% interest in its smart card business (with a suggest value of €1bn for 100%), UBS believes that this would "clearly go some way to easing financing concerns on a bid," said analyst Alex Hugh.While recognising the increasing probability of a bid (at around 1,030p a share), the broker raises its target price significantly, from 565p to 800p.---BC