Broker tips: Tesco, Punch Taverns, Lonmin

15th Jun 2009 13:32

With a trading statement from Tesco expected tomorrow, JP Morgan has taken the opportunity to restate worries about the performance of the company's core UK grocery business.With Tesco's rivals catching up on the UK's number one retailer JP Morgan has reiterated its 'underweight' rating and 300p price target, though it likes the increasing emphasis the company is putting on personal finance.'We estimate TPF [Tesco Personal Finance] could add 5p per annum to Tesco's share value over the next six years,' the US investment bank said.Lonmin has shut down its Number One furnace following a matte run-out yesterday and estimates that a full repair of the vessel is likely to take around 30 days, prompting Evolution Securities to turn negative on the stock.'This is not the first time that Lonmin's number one furnace in South Africa has suffered a run-out - but the company had been getting better at managing the furnace and confidence in its abilities was starting to improve,' said investment analyst Charles Kernot.Evolution believes the enduring strength of the rand will act as a brake on profitability, though the cost-cutting programme will help.'It will need to work harder on the cost-cutting front to move the operations back into profit - even assuming that it can overcome the furnace issue with little adverse earnings impact,' Kernot believes.This morning's trading statement and announcement of a £350m placing and open offer by heavily indebted pub group Punch Taverns has left the investment analyst community divided on the stock's appeal.Broker KBC Peel Hunt rates the shares a 'buy' and has a price target of 230p. It recommends shareholders take advantage of the open offer which it expects to succeed at a small discount to the current share price. The tender price for the offer is not less than 95p.Trading is in line with expectations for the year, with like for like (LFL) earnings before interest, tax, depreciation and amortisation (EBITDA) in the first 40 weeks of its financial year 'slightly improved at -11.2% for tenancies and 1.2% for managed pubs.'KBC expects to upgrade its current year earnings per share estimate of 40.1p following the trading statement.In contrast, Charles Stanley is concerned that the company's focus is fixated on raising cash through disposals rather than running the business. 'The news filtering through from the management team is that operationally there is considerable work necessary to order that the business can trade through this environment,' said Charles Stanley analyst James Dawson.The broker has downgraded the stock from 'reduce' to 'sell' and has a price target of 115p.