Broker tips: Weir, Rotork, ASOS, Barratt Developments, Bovis Homes

20th Sep 2016 12:29

(ShareCast News) - Credit Suisse initiated coverage of Rotork and Weir at 'outperform' as it took a look at the pan-European capital goods sector.The bank gave Rotork a 230p price target. "We see Rotork as a high-quality company and while we do not discount a recovery in end markets, we see continued support for earnings from ongoing acquisitions and FX."In addition, the bank said it sees scope for continued consolidation in Process Automation, adding that Rotork is in an attractive asset given its relatively high market shares in niche markets.CS started Weir with a 1,800p price target. The bank said its positive view was based on the potential for earnings upgrades driven by US onshore oil & gas and FX."On valuation we think stability in the mining business provides support and the shares are not pricing in a demanding recovery for O&G."CS pointed out that Weir has historically correlated well with the rig count, where its US team forecasts 28% growth in 2017.It also said Weir has broad currency exposures and is most leveraged to the US, Canadian and Australian dollars, which have strengthened materially.Credit Suisse started coverage of IMI at 'neutral' with a 1,020p price target. It said that given the company's historical below-sector average organic growth of 1.5% in 2007-15, the focus on investment in IT and improving time to market /customer service is reassuring."However, in 2017 we see limited recovery in end markets, high-margin businesses (Critical aftermarket) under pressure and against that backdrop we expect 2017 to represent a transition year." Macquarie initiated coverage of online fashion retailer ASOS at 'outperform' with a 5,700p price target."ASOS is an attractive online fashion mall/destination for the 16-34 year old global audience, offering a range of own-label and branded products with best-in-class delivery/return options in the UK. It is a key structural winner in our space providing superior growth and return on capital employed."Macquarie said the company was well positioned in its proprietary fashion retail framework as a result of clearly distinctive positioning, strategic flexibility and differentiating supply chain.It pointed to strong product differentiation, attractive prices, with the biggest differentiation coming from its focus on a well-defined target group of people in their 20s. The content-rich presentation with intuitive mobile navigation drives engagement and loyalty, it said.In addition, it argued that recent significant catch-up investments in technology, strength in mobile, smart use of data and expansion of its best-in-class UK fulfilment capabilities in Europe/US should enable the company to exploit significant growth potential."We expect ASOS to continue to improve its proposition by investing benefits from scale and improving UK warehouse efficiency among others into more attractive prices, shorter deliveries and improved delivery/return options. This is particularly true for high-potential European and US markets."As a result, Macquarie expects the retailer's global online fashion market share to rise to 1.2% by 2020 from 0.9%. Barratt Developments and Bovis Homes were under the cosh on Tuesday after UBS downgraded the housebuilders to 'neutral' from 'buy' as it reviewed the sector.UBS said market dynamics have been "significantly more benign" in July and August following the UK's vote to leave the European Union on 23 June. The bank noted that after an initial drop reservation rates have recovered and were on average up 3% year-on-year in July and August against a tough basis of comparison. RICS data also showed a stabilisation in price expectations following an initial decline."Following evidence suggesting UK residential market trends have been more resilient than expected than immediately after the EU Referendum, we move to a scenario of 0% volume growth and 0% net inflation, from previously -15% and -5%, respectively for 2017/18E," UBS said."While current run rates suggest better dynamics than this, we apply some prudence given risks of a lagged impact on the sector. Shares have recovered about 40% since the bottom but remain about 15% below the 23 June level."UBS said it top picks in the sector remainBerkeley, Bellway and Persimmon, reiterating a 'buy' rating on the stocks. It also maintained its 'buy' rating on Crest Nicholson, Redrow andTaylor Wimpey and kept its 'sell' rating on McCarthy & Stone.The bank said secondary market trends have been "somewhat softer" with lower transactions, including in high-end London properties. However, UBS believes the slowdown may be attributable to the increase in stamp duty in April rather than the EU Referendum.UBS added that Help to Buy has been a key driver of support for the new build sector. It expects the shared equity element of Help to Buy to be maintained given the success of stimulating new build construction.The bank concluded: "The initial exercise following the EU Referendum was to calibrate the potential downside risk which we concluded was relatively low compared to upside. After the rebound, we believe the market is pricing in some modest house price deflation. Considering (1) attractive yields of 6.6% and 7.7x P/E CY17E; (2) supportive government policy; (3) strong balance sheets which are mostly net cash, we remain positive on the sector although become more balanced in our recommendation profile."