Broker tips: SABMiller, Rolls-Royce, C&C

27th Jan 2010 13:23

Credit Suisse recently met with SABMiller's Latin American management team and came away with its bullish perspective of the Peroni brewer reinforced.'The stock is off 10% from its year-end 2009 peak and the PE [price/earnings] multiple has eroded by 12% from its peak 18x to today's 15.8x. We think this is overdone,' the broker stated.While SABMiller's management conceded that Latin American volumes this year will be soft, largely as a result of an increase in excise duty in Colombia, it claimed this has been well flagged in the market. The management team 'insists it has the ability to flex the business to protect margins', while last year's comparative figures are not challenging.Using the bank's HOLT model, which takes accounting information, converts it to cash and then values that cash. Credit Suisse reckons 'fair value indicates 24% upside to the share price,' hence the 1960p price target. 'Given the company's track record we think this is realistic, especially compared to some of its key competitors,' Credit Suisse concludes.UBS is raising its price target for engine designer Rolls-Royce but maintaining its 'sell's stance, noting that the company already trades at a significant premium to its civil aerospace sector peers.'For a company that in our view; faces a weak cash flow outlook for both 2010 and 2011; brings a degree of risk due to more aggressive accounting policies; and has earnings expectations which we believe are too high, we believe a premium rating can not be justified - hence our Sell rating,' says UBS analyst Avi Hoddes.The broker is raising its earnings per share (EPS) estimates for Rolls-Royce to take into account a healthier outlook for the industry. The 2009 EPS estimate has been ramped up by 15%, while 2010 and 2011 see their EPS forecasts increased by 135 and 11% respectively. The earnings upgrades have prompted a change in the price target from 280p to 360p.Citigroup has been poring over the sales data for the pub trade and has seen mixed news for Magners cider producer C&C Group.The data, covering the months of October and November last year, show a 'material improvement in the performance of Magners Original and in particular an improvement in Scottish distribution,' notes Citi analyst Liz Hartley, but the figures also highlight a weak performance by Gaymer Cider and a 'lower price-mix amongst packaged but stronger price mix in mainstream cider.'Citi rates the stock as a high risk buy and has a target price of €2.95.