UK MARKET TALK ROUNDUP: BROKERS COMMENTS

26th Jul 2010 10:43

Broker comments in the UK today. Compiled by Dow Jones Newswires Markets Desk, [email protected] Contact us in London. +44-20-7842-9464 [email protected] 0943 GMT [Dow Jones] Altium Securities downgrades SDL (SDL.LN) to hold from buy following the stock's 24% outperformance over the last three months. Remains convinced of the medium-term attractions of the market, but in the absence of further upgrades believes the stock is fairly valued. "One note of caution is with regard to the recent strengthening of the pound against the dollar and euro, which if it continues will provide a headwind to both revenues and profits." Has 525p price target on the stock. Shares +1.3% at 552p. ([email protected]) 0925 GMT [Dow Jones] Nomura nudges up Vodafone (VOD.LN) price target to 168p from 165p to reflect the positive CFC tax settlement. Notes the company's emerging market and US exposure have been a source of earnings upgrades rather than earnings risk this quarter, helping to offset the FX headwinds. However, says the outlook in Europe - the region most important for sentiment and where Vodafone's performance is below par - is clouded by an increasing sector-wide focus on market share, which is likely to intensify competition in Vodafone's main European markets. Keeps the stock at neutral. Shares +0.3% at 151p. ([email protected]) 0852 GMT [Dow Jones] The scale of the disaster in the Gulf of Mexico has always indicated that significant management changes at BP (BP) were unavoidable, says Westhouse Securities. "We now expect Tony Hayward's tenure at the group to continue for very limited time," it adds. For now, BP is only saying that at present Hayward has the full backing of the board - although this could change at the board meeting later Monday, says Panmure Gordon. "This would be bad news for BP given that Tony Hayward was doing a good job that was only marred by the tragedy in the Gulf of Mexico," Panmure says. The market now awaits BP's 2Q earnings, due July 27, for further details. BP shares +1.7% at 405p. ([email protected]) 0804 GMT [Dow Jones] Evolution Securities cuts Cairn Energy (CNE.LN) to neutral from buy following a run up in the company's shares of 15% in the last three months. "The shares though are now trading 14% above our target price based on the core plus risked upside," it says. "While an outright sell is not merited on the basis of the unrisked upside potential in Greenland we believe it prudent to stop buying the shares at the current level ahead of any drilling news." Cairn has started drilling its first exploration wells this summer in Greenland, which is seen as a high risk, but high opportunity area. Gives a 417p target. Shares flat at 473p. ([email protected]) Contact us in London. [email protected] 0749 GMT [Dow Jones] Adjusted EPS consensus for Pearson's (PSON.LN) 2010 EPS should settle around 71-72p if management is comfortable with guiding toward 70p at this stage of the year, RBS analyst Paul Gooden says. It follows "strong" 1H results, with adjusted EPS of 16.6p, well ahead of Gooden's 8.1p forecast. But bears will remain concerned about Pearson being countercyclical with risk that progress could slow as economies stabilize, says Gooden. On the M&A front, Pearson paid 5.5x sales to expand in Latin America last week and the shares trade at a material premium to peers, Gooden notes. Hold rating, 865p target. Shares +3.1% at 1003p. ([email protected]) 0746 GMT [Dow Jones] The European bank stress tests should have been tougher, says Evolution Securities, and the whole exercise lacks credibility. "We don't see the Tests as a strong positive catalyst for equity investors, although we do expect them to help in the gradual normalisation process of funding markets," says Evolution. Says it becomes increasingly selective on the banking sector, as the average upside (22%) is now more limited. Says Santander (STD) remains its core conviction buy, with Lloyds Banking Group (LYG), BNP Paribas (BNP.FR), and Standard Chartered (STAN.LN) core buys. Replaces ING (INGA.AE) and Ageas (AGS.BT) with BBVA (BBV) and RBS (RBS.LN) as core buys. Says National Bank of Greece (NBG) and Banco Popolare (BP.MI) got the lowest results in its universe, and remain core sells. ([email protected]) 0702 GMT [Dow Jones] Reckitt Benckiser (RB.LB) 2Q "slightly ahead" of Shore Capital's forecast, says analyst Darren Shirley. Says the core business has modestly outperformed, driven by emerging markets. Europe is still suffering from increased competition, particularly from Proctor & Gamble (PG). See no change to full-year forecasts and reiterates buy stance. Shares -0.5% at 3320p. ([email protected]) 0655 GMT [Dow Jones] Bank of America Merrill Lynch raises Capita Group (CPI.LN) to buy from neutral. "We expect Capita to win more big ticket contracts over the next 12 months which, coupled with less run-off, should drive an improvement in organic growth over 2011/12," says brokerage. Adds that Capita is a high quality name, with strong market positions, management and cash flow returns. Has a 820p price objective. Shares closed at 739p. ([email protected]) 0650 GMT [Dow Jones] William Hill's (WMH.LN) restructuring of its telephone betting operations is positive, but guidance will remain unchanged, says an analyst. Says the restructuring should eliminate some GBP4M of annualized cost so "this should be seen as positive management action." William Hill Online will establish a new telephone betting operation in Gibraltar, which will allow the group to close its directly owned telephone betting subsidiary in the U.K. The services will then be provided by William Hill Online and Vertex (an outsourced service provider). Shares closed at 174p. ([email protected]) 0649 GMT [Dow Jones] Aberdeen Asset Management's (ADN.LN) GBP300M net inflow in the fiscal third quarter is "a pleasant surprise," says corporate broker JPMorgan Cazenove, which had expected an outflow. Total assets under management came in below JPM's expectations, but the lower figure is countered by a modestly-higher revenue margin, and the effects of the market rally since the end of June mean little change to its estimates. Broker keeps an overweight rating. Shares closed Friday at 133p. ([email protected]) 0643 GMT [Dow Jones] Pearson's (PSON.LN) shares are expected to rise after upgrading its outlook for 2010 after strong 1H results, says a media analyst, noting there was some concern in the market that the group wouldn't be able to maintain its strong performance. While market conditions remain uncertain and growth is expected to slow in the 2H due to tough comparables, Pearson forecast adjusted earnings of approximately 70p a share for the year, up from 65.4p a year earlier. The guidance takes into account the earnings impact from the sale of its 61% stake in Interactive Data Corp. Pearson shares closed at 973p Friday. ([email protected]) 0641 GMT [Dow Jones] Tullow Oil's (TLW.LN) latest oil discovery offshore Ghana in the Owo field is "really exciting," and could add a billion barrels to the resource estimate for the area, says Panmure Gordon analyst Peter Hitchens. If Owo had not found oil, resources in the greater Tweneboa area would probably have been capped at 400 million barrels of oil equivalent, but the new find makes it more likely that the area contains around 1.4 billion boe, he says. Owo is also potentially more valuable to Tullow than the Jubilee field's estimated 1.5 billion boe because it has a larger stake of 49.95%, he adds. Has a buy rating, 1500p target price. Shares closed Friday at 1179p. ([email protected]) Contact us in London. +44-20-7842-9288 [email protected] (END) Dow Jones Newswires July 26, 2010 05:43 ET (09:43 GMT)