Broker tips: Tate & Lyle, Wolseley, BTG

28th May 2009 13:23

The outlook for sugar and sweeteners group Tate & Lyle remains uncertain and the shares should be sold, according to Panmure Gordon."The headline number of PBT [profit before tax] down just 2% is flattered by the strength of the dollar. In constant currencies PBT fell by 18%, and the outlook remains 'difficult to predict'," the broker said.Tate & Lyle is taking a £97m (£60m cash) hit to mothball its US sucralose plant, though this will help protect adjusted profits in 2010. However, 'with a difficult HFCS pricing round ahead, ethanol margins being non-existent and the dollar now weakening, we expect forecasts for March 2010E to continue to drift off,' Panmure Gordon analyst Graham Jones said.Panmure Gordon has a price target of 250p for the stock.Management was putting a brave face on things at building supplies group Wolseley after the group announced trading profit more than halved in the first nine months of its financial year, but brokers seem united in predicting further problems ahead for the group.'The numbers were quite poor,' opined Sanjay Jha, an analyst at Pali International, 'If you assume the US plumbing business made a profit, it seems to me that they probably made a loss in Europe,' Jha said.Panmure Gordon has cut its rating on Wolseley from 'buy' to 'sell' after the stock doubled in price during March and April. 'While the shares remain a potential early beneficiary of any US stimulus boost, it is time to take profits, therefore we downgrade our recommendation to Sell,' said Panmure analyst Andy BrownAfter raising £1bn through a capital issue recently and exiting from the Stock building supply business in the US, the group is 'strongly positioned both to meet the current challenges in the markets and to capitalise on a future market recovery,' according to its chairman Chip Hornsby, but Imran Akram, at Collins Stewart, begs to differ.'We believe Wolseley is losing market share; the turmoil of its debt problems and the scale of stock losses have left it poorly placed to navigate the downturn,' the broker claimed.Charles Stanley has seen 'a silver lining in the update' in the form of progress made on improving the balance sheet and liquidity of the group, but still believes the shares are overpriced.'There remains some uncertainty over parts of the portfolio, i.e. a strategic review is underway for the Central Eastern European region, and given there is no dividend and a rich valuation, i.e. P/E of 14x for year to July 2009 which is a premium to Travis Perkins, we maintain our Reduce recommendation.'Broker KBC Peel Hunt has upgraded its profit forecasts for BTG despite the life sciences group announcing earlier this month that it fell into the red last year.'Headcount is coming down and products have been rationalised. The pro forma operating expense and R&D amounted to £65m in 2009, which is set to be reduced to £45m by FY2011,' notes KBC analyst Paul Cuddon.Furthermore, BTG will use the critical care franchise it inherited from Protherics to drive profitability, Cuddon states, unlike Protherics, which used it as source of funding for research and development.KBC, which rates the stock a 'buy', has raised its target price from 164p to 186p and is now forecasting 2010 profit before tax of £7.8m, having previously forecast BTG would merely break even in 2010.