Broker tips: Water companies, ITV, Johnston Press, Topps Tiles

27th May 2009 12:27

Brokers are queuing up to reappraise the water companies ahead of the sector's results season, which starts this week.After Merrill Lynch weighed in yesterday with downgrades for Pennon and Northumbrian Water, Credit Suisse has dealt another blow to Pennon, chopping its price target from 667p to 617p.It has, however, taken a more optimistic view of Northumbrian Water, which it has upgraded to 'outperform' from 'neutral', although the price target has been trimmed from 310p to 301p.Severn Trent also gets an upgrade, from 'underperform' to 'neutral', though this, too, is accompanied by a downward revision of the target price, from 1319p to 1210p. Completing the review of the sector's big four, United Utilities sees its price target moved down to 609p from 671p.The Swiss group believes the rally in water stocks is set to continue, and expects United Utilities to show the strongest growth in earnings before interest and tax in the sector. Credit Suisse also likes United Utilities' dividend. The stock is yielding 8.6%, suggesting the market fears the divi may not be maintained, but Credit Suisse believes the dividend level is sustainable and 'could help to justify a higher valuation going into the next price review.'The downturn in the advertising market has made life hard for media companies but the sector received a fillip today from Goldman Sachs, which has upgraded some of the major players.Broadcaster ITV is upgraded from 'sell' to 'buy' and added to the US bank's 'conviction buy' list. Goldman Sachs anticipates that forward advertising data will start to show signs of levelling off over the second and third quarters.Newspaper group Johnston Press sees its rating lifted from 'sell' to 'neutral' on expectations of consolidation within the sector.'Following more positive macro data, we increase our 2010 forecasts by 23% on average,' the bank said in a research note on the European media sector.The bank has maintained its 'buy' recommendations for Reed Elsevier and Aegis. The prospect of a breach of debt covenants is receding at cash-strapped tile and flooring specialist Topps Tiles as the slide in sales is showing signs of easing.The Topps board said that based on current trading and current expectations for the next 12 months it expects to operate within its current financial covenants, a statement that brokers Singer Capital Markets and KBC Peel Hunt found reassuring.Both brokers have 'buy' ratings on the stock, with Singer's target price 80p and KBC's raised from 80p to 100p. KBC has upgraded its full-year profit before tax forecast by £3m and believes that if sales volumes can be maintained over the second half of Topps's financial year there is scope for further upgrades