Broker tips: Persimmon, Punch Taverns, Aggreko

25th Aug 2009 11:29

Results from housebuilder Persimmon were ahead of Panmure Gordon's expectations on most measures, prompting the broker to lift its price target.Panmure Gordon reiterates its 'hold' recommendation but ups its price target to 500p from 428p on the basis that write-downs are likely to be lower than its previous expectations.'It is interesting that Persimmon has stated that it will only selectively purchase new land sites, as it has sufficient land holdings in place to develop in the coming years,' the broker notes, adding that this 'should allay market fears that a dilutive rights issue is around the corner.' KBC Peel Hunt diagrees, however.'Debt has reduced, but the working capital cycle has turned and the movement going forwards is likely to be outflows after 18 months of high inflows,' suggests KBC's Robin Hardy, a long time housebuilding sector bear.'Covenants have been set based on required levels of cash inflow. This means that by re-investing in land and stock, Persimmon (along with most others in the sector) is constrained by its covenants. This raises the possibility of an expensive refinance or perhaps a raising of equity to support any re-investment,' Hardy warns.KBC rates the shares a 'sell' and has a target price of 301p.Punch Taverns is reducing debt faster than expected, according to broker KBC Peel Hunt.'Disposals for the year are in excess of £400m, well ahead of our expectations. As a consequence net debt has been reduced by more than £1bn. Management expects the payment conditions to be met for the Punch A and B securitisations, allowing further cash to be upstreamed to the plc,' KBC analyst Paul Hickman noted.'While we do not underestimate the challenges presented by the financial leverage within the business, from a trading and cash perspective Punch appears to be beyond the worst,' Hickman suggested.Progress on the debt front is likely to be well received and attract investors to the stock. KBC rates the shares a 'buy' and has a target price of 170p.Temporary power supplier Aggreko continues to perform well but brokers are reluctant to recommend buying the shares after the share price's recent good run.Charles Stanley believes the shares are high enough for the moment. 'After a year of very strong growth in 2008, helped by the contract to provide power for the Olympics, Aggreko will do well to generate further growth this year,' Charles Stanley analyst Geoff Allum believes.The shares remain worth holding, however, in Allum's view, as the company's international power projects division 'offers a relatively safe stream of earnings.' Charles Stanley has a price target of 630p for the stock.Like Charles Stanley, broker KBC Peel Hunt has a 'hold' recommendation for Aggreko shares, though its price target is lower at 600p.'We are likely to raise estimates by around 5% to reflect currency,' said KBC analyst Andrew Nussey. Aggreko earns around 70% of its revenue in dollars.Panmure Gordon also rates the shares as a 'hold', and has increased its price target to 571p from 514p. 'Conversion of enquiries to contracts remains tough given a lack of apparent funding, though there appears no loss in market share/opportunity,' the broker said.