Broker tips: Tullow Oil, Reckitt, Tate & Lyle

29th Jan 2010 11:35

Oil company Tullow Oil's share price got a battering after it announced a £925m placing this week, but Exane BNP Paribas remains a fan of the stock, and sees a bright side to the fund raising.'Reassuringly, the company says the proceeds will be used to fund an accelerated exploration drill-out and cover mechanically higher development expenditure in Uganda, not spiralling capex [capital expenditure] requirements,' the broker said.Exane believes the stock offers a positive risk/reward proposition. 'Admittedly, Tullow does not offer the cheapest exploration upside but our blue-sky scenario offers 89% upside. Moreover our core valuation and the current price imply a mere 35% chance of success, versus a track record in the 70-90% range,' the broker reasons, adding that the possible sale or purchase of assets in Uganda could also be a catalyst for share price movement.The broker has retained its 'outperform' rating for the stock and has a price target of 1300p. It is time to consider emerging opportunities at Anglo-Dutch household goods maker Reckitt Benckiser, claims HSBC.The bank notes that Reckitt's price/earnings ratio relative to its peers is close to a six year low, 'even adjusted for Suboxone,' the company's heroin substitute drug for which it lost its exclusive licence in the USA at the end of 2009.'We see short-term time value in Suboxone and long-term opportunities for household business in emerging markets once income per capita allows penetration rates to increase,' HSBC said.The price target for the stock has been upped by HSBC to 3720p from 2720p 'on undervalued execution-led growth prospects and potential emergence of a D&E [developing and emerging markets] multiplier effect,' while the investment recommendation has been upgraded to 'overweight' from 'underweight'.Sugar and sweeteners company Tate & Lyle's third quarter trading update confirmed that the recent sweetener pricing round had not gone well for the suppliers, UBS says.The Swiss bank said that in the face of declining demand, the sweetener processors 'have been prepared to price aggressively to protect volumes.'Nevertheless, UBS has upgraded the stock from 'sell' to 'neutral' following the battering the share price has received lately'.'With the stock's enterprise value having fallen to just over 6x our 'normalised' EBITDA [earnings before interest, tax, depreciation and amortisation] estimate, we no longer judge it expensive,' UBS analyst Alan Erskine said.Erskine said he would retain a cautious stance on the stock until the 2011 earnings picture becomes clearer and new chief executive Javed Ahmed fleshes out his strategic vision for the business. The 9% stake held by activist hedge fund Harbinger also clouds the investment case, Erskine added.Despite upgrading the stock, the price target has been trimmed from 425p to 415p.