Broker tips: William Hill, Fenner, Chariot Oil and Gas

6th Sep 2010 13:19

Panmure Gordon has raised its earnings estimates for bookie William Hill but is still a seller of the shares, as it believes the market is being over optimistic on the prospects for the high street part of the business.The broker has bumped up current year earnings estimates by about 4% to £191.3m (pre-tax profit) and 17.4p (earnings per share, or EPS), but has trimmed the full year dividend forecast by about 2% to 7.50p.The upgrade to its forecasts still leave the broker some 14% below consensus expectations. "Whilst we believe operationally and strategically William Hill is doing all the right things, it is too early to be positive on the bookmakers and we retain our Sell recommendation and 168p price target," the broker believes.The broker "struggles to see" how the group can grow profitability next year "given the lapping of the World Cup, the proposed reduction in the UK horse racing fixture list, the increase in VAT on machine income, cost inflation in Retail, ongoing regulatory change online and the potential for tax increases in response to the findings of the 2010 Gambling Prevalence Study."Conveyor belt maker Fenner is enjoying a decent recovery in its underlying markets, says FinnCap, and with the shares having drifted lower of late the stock is currently priced at an attractive level, the broker believes.The company's pre-close statement points to results being at the top end of expectations. "We believe this implies pre tax profits will be at around £45m. This compares with our existing forecast of £44.1m, with EPS of 17.0p. We therefore see some slight upside to our forecasts. The debt level is also lower than we had previously forecast at £136m," said FinnCap analyst David Buxton."The shares trade on a current year [earnings per share] multiple of 12.4x which drops to 10.3x next year. This compares well to many in the engineering sector. Equally, we argue that the diversity of the groups earnings base and the strong expected demand for conveyor division gives the group a more defensive orientation than many in the sector, especially as other conditions," Buxton asserts.The broker has a price target of 285p for the stock, based on a target fair value of 14 times projected 2011 earnings per share. It rates the shares as a "buy".Broker Daniel Stewart is patting itself on the back after predicting that the volume estimates and chances of success ratings for Chariot Oil and Gas's Namibian assets were too low, after the company upgraded both on Monday morning."Part of our analysis at the time [of its initiation of coverage] included calculations that showed that volume estimates are too low and/or that the estimates for the CoS were excessively conservative. Both parts of that thesis now have been confirmed," said investment analyst Richard Nolan, who added that he is now much more confident in the broker's 291p price target."We estimate most of the improvements occurred in the Southern blocks which Chariot farmed-out to Petrobras. Obviously they knew a good thing when they saw one however, with the presence of direct hydrocarbon indicators (DHI) in the Northern block prospects and the on-going studies of them, they may turn out to be superior to the Southern blocks," Nolan said."The current Northern CoS values do not include the DHI response so far. If the on-going studies result in a positive outcome revised CoS values could be in the range of 25% - 33% on a per prospect basis providing a significant boost to the potential of this area. Consequently the Northern blocks may be superior to the Southern Blocks. Increasing prospective resources and improving CoS could increase bidding tension amongst those companies that are looking at this and other information in the data room," Nolan added.Daniel Stewart rates the shares a "buy".