Broker tips: Premier Foods, Electrocomponents, Dairy Crest

14th Nov 2011 13:28

UBS has downgraded struggling food manufacturer Premier Foods from neutral to sell, saying it's "difficult to see a way back from here"."Acknowledging the banks' understandable reluctance to take outright control of Premier via a debt/equity swap, it is our belief that they are now in a position to set the agenda," said UBS analyst Alan Erskine. "The banks overriding priority must be to get their money back as quickly as possible and whilst this requires Premier to make profits/ generate cash, we are concerned that the interests of equity shareholders are now subordinate."The broker cuts its price target from 21p to just 2p, saying that there is a "significant risk that the equity may be worthless."Singer Capital Markets has reiterated its fair value rating and 284p target for Electrocomponents but has highlighted some positives at the electronic components distributor, such as its cheap valuation.The broker notes that while the stock has fallen 12% over the last year, a sharper operational focus meant that the company outperformed its closest peer Premier Farnell, which fell 38%. "Investors should consider the longer game where holdings could be built up in this fallow period and would benefit from the 6.2% yield. Although the dividend was cut in the last recession, there were mitigating reasons for it and we do not believe these will recur," Murphy said.Due to "far from encouraging" interim results, Credit Suisse has cut its target price for Dairy Crest from 400p to 350p and reiterated its underperform rating for the cheese and milk group. "For many years now Dairy Crest has really only grown through acquisitions, but now has neither the balance sheet nor the cash flow to fund anything meaningful," the broker said."The worrying swings in the profitability of the Dairy business make the earnings stream far from predictable, while the underlying fundamental make for a hazardous backdrop."BC