Broker tips: Serco, Travis Perkins, Pearson

29th Aug 2013 11:42

Investec admits that Serco reported a decent set of interim results on Thursday, but chose to stay on the cautious side and maintained its 'sell' recommendation ahead of a tough second half for the outsourcing company.Analyst Gideon Adler said: "We continue to view Serco as a business well diversified into structural growth, but believe that in the short term it faces the triple threat of a subdued revenue outlook (particularly in its UK public sector pipeline), margin headwinds and contracting free cash flow. With a subdued second half in prospect we remain cautious and see better value elsewhere."Building materials group Travis Perkins was making gains on Thursday morning, rebounding after recent share-price weakness, helped by an upgrade by Citigroup from 'neutral' to 'buy'.The US bank said that after a 10% fall from its recent high - down by 2% over the last three months - the stock is now trading at 13.5 times 2014 earnings which looks "relatively attractive the balance sheet capacity and potential for earnings recovery given the positive trends expected in the UK".Deutsche Bank has downgraded its rating for education and publishing company Pearson from 'hold' to 'sell', highlighting its exposure to an industry that's changing rapidly in the face of improving technology.Analysts said that educational publishing faces many threats: "1) digital exposes how little value is in content, so pricing will likely fall much further than costs as buyers switch to new entrants and to open content; 2) Higher Ed is at breaking point - too many students, tuition costs out of control."BC