UK MARKET TALK ROUNDUP: BROKERS COMMENTS

19th Jul 2010 08:11

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] 0711 GMT [Dow Jones] Debenhams' (DEB.LN) renegotiation of its banking facility is good news as it will bring down the company's interest charge significantly next year, with the average interest cost on debt to fall to 4.5% from about 7%, says Arden Partners. Arden says this should lead to a bounce in the stock and so maintains an add recommendation. It notes highly-geared Pendragon (PGG.LN), rated at buy, will be hoping to do the same as Debenhams next spring and will renegotiate with its banks over its debt facility to cut punitive interest charges. Debenhams shares -0.4% at 58p.([email protected]) 0658 GMT [Dow Jones] UBS raises Burberry Group (BRBY.LN) target price to 790p from 730p, following the company's announcement that it will buy out its Chinese franchisees. UBS sees this transaction as very positive for Burberry, given that it allows the group to directly operate its business in what is currently the Luxury sector's key market. Says the deal is expected to close in September, but its impact on FY '11 earnings will be broadly earnings neutral. "In FY '12, however, the transaction is expected to add approximately GBP20M to operating profit as Burberry starts focusing on implementing productivity improvements," adds UBS. Has a neutral rating on the stock. Shares closed at 800p. ([email protected]) 0658 GMT [Dow Jones] The merger of the assets of International Power (IPR.LN) and GDF-Suez (GSZ.FR) has limited upside for shareholders in the former company, says Evolution Securities analyst Lakis Athanasiou. "There are obvious costs synergies," that could be worth 30 pence a share for the combined company and a weaker strategic rationale, he says. International Power has had limited success in the Middle East and may benefit from better French relationships there, he adds. However, there is a big downside for International Power investors in that they become minority shareholders in a French-controlled company, he says. International Power shares closed at 317p. ([email protected]) Contact us in London. [email protected] 0657 GMT [Dow Jones] Citigroup raises its ARM Holdings (ARM.LN) target price to 225p from 210p to reflect a stronger a dollar. Nonetheless, it keeps a sell rating. It says the expansion of the FY11 P/E multiple to 30x from 19x over the last 12 months [versus European Technology sector P/E expansion to 14.5x from 10.1x] suggests ARM's valuation has run well ahead of fundamentals. "Bid speculation has been a significant factor in recent multiple expansion but we do not believe ARM will be acquired. At these levels, we see ARM struggling to outperform on a 12-month view," it adds. Shares closed Friday at 304p. ([email protected]) 0652 GMT [Dow Jones] Bernstein Research raises Burberry (BRBY.LN) price target to 800p from 750p after the company announces it is to acquire its franchisee operations in China. Says this occurred sooner than expected. It notes that this move comes after a number of concerted actions have been undertaken to bring distribution under control. "The acquisition...looks like the coming of age for Burberry as a global mega-brand." It says Burberry will be even better positioned to capture rising demand in the region. Keeps at market perform. Shares closed Friday at 799.5p. ([email protected]) 0638 GMT [Dow Jones] Jefferies raises Admiral Group (ADM.LN) target price to 1633p from 1439p "to reflect a lower discount rate." Says press reports suggest that Admiral will begin underwriting household insurance, possibly as early as next year. "While this will take some time to feed into earnings, this is a positive message," says Jefferies. Says the market hasn't grasped that Admiral's potential lies in so much more than simply car insurance. "The same is true for Confused (business), since this can develop into much more of a lifestyle brand than is currently the case," it adds. Has a buy rating. Shares closed at 1410p. ([email protected]) 0628 GMT [Dow Jones] HSBC initiates coverage of UK bus and rail stocks with National Express (NEX.LN) at overweight, 275p target; FirstGroup (FGP.LN) and Go-Ahead Group (GOG.LN) at neutral with 360p and 1110p targets respectively; and Stagecoach (SGC.LN) at underweight with 175p target. The sector faces a mixed outlook, says HSBC. It says rail passenger revenue trends are improving but the outlook for bus is more difficult. It notes the bus industry is heavily funded by the government and expects these subsidies to come under threat. On Friday, National Express shares closed at 235p, FirstGroup at 371.7p, Go-Ahead at 1129p and Stagecoach at 182.3p.([email protected]) 0616 GMT [Dow Jones] UBS upgrades PayPoint (PAY.LN) to buy from neutral and lifts the price target 410p from 275p after the National Lottery Commission provisionally denied Camelot the permission to branch out into bill payments and mobile top-ups. That would have been a substantial threat to PayPoint and has been a major overhang on its shares. A final decision from the NLC is expected September 3. Meanwhile, PayPoint's valuation is undemanding says UBS, but investors are questioning the diversification of its business model. These concerns are likely to overhang the shares the near-to-medium-term. Shares closed Friday at 350p. ([email protected]) 0610 GMT [Dow Jones] Citigroup raises Pearson (PSON.LN) target price to 1100p from 1070p, citing better long-term growth prospects and a cheap valuation. Still, cuts 2011-2012 EPS estimates by around 6%, reflecting the disposal of Interactive Data Corporation. Says M&A is likely to enhance growth/returns. "Encouragingly, Pearson's track record in this area has been strong and our review of potential targets leads us to believe that, all-in, portfolio realignment will be accretive to growth/returns," it says. Keeps a buy rating. Shares closed at 925p. ([email protected]) Contact us in London. +44-20-7842-9288 [email protected] (END) Dow Jones Newswires July 19, 2010 03:11 ET (07:11 GMT)