UK MARKET TALK ROUNDUP: BROKERS COMMENTS

7th Jul 2010 09:20

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] 0820 GMT [Dow Jones] Daniel Stewart initiates coverage of International Ferro Metals (IFL.LN) with a buy rating and 87p price target. Sees 'the company returning to profit this year, supported by improving ferrochrome prices." Says ferrochrome market "is rapidly returning to the point where demand exceeds supply - this is reflected by recent strong price appreciation," but "the positive impact of this on International Ferro Metals has not yet been recognized by the market." Adds the South African-based miner "offers a focused investment opportunity." Shares -1.8% at 27.5p. ([email protected]) 0816 GMT [Dow Jones] WestLB upgrades Sage Group (SGE.LN) to buy from add, "to reflect greater mathematical upside but also to highlight the fact that we believe this company to be defensive and cheap." Notes cash flow has been excellent, with a free cash flow yield of nearly 10%. Says with a change of CEO on the way, the future could evolve in a number of ways, one of which is that Sage could very easily attract speculative interest. "This is the kind of share to buy in a weak stock market." Has 280p price target. Shares -0.4% at 227p. ([email protected]) 0758 GMT [Dow Jones]--3i Group's (III.LN) statement for its first fiscal quarter is reassuring, but unlikely to cause anyone to change views or estimates, says Merrill Lynch. Keeps a buy recommendation. The private equity firm's portfolio companies continue to perform well overall, according to chief executive Michael Queen, and although the debt level is up slightly from year end this is as we would expect as the investment environment improves, Merrill Lynch adds. "Overall, we would view this statement as a minor positive, as the market has been in worry mode recently, and this update suggests that 3i's portfolio, at least, is in decent shape," says Merrill Lynch. Keeps at buy, with a target price of 360p. Shares -1.2% at 260p, in a negative market. (MTC) 0700 GMT [Dow Jones] Marks & Spencer's (MKS.LN) 1Q trading update is good, says Arden Partners. Says the general merchandise outcome is encouraging, given that the weak Debenhams (DEB.LN) sales figures last week implied the clothing market in June may have been a bit disappointing. Adds that the problem for M&S is more to do with costs than sales. Keeps the stock at reduce. Shares closed Tuesday at 353p. ([email protected]) 0658 GMT [Dow Jones] Smiths Group's (SMIN.LN) new funding plan for its two major U.K. pension schemes is "slightly novel" because it allows Smiths keep its contributions in an escrow account, which means it will not immediately see money taken off its balance sheet, says Arden Partners analyst Chris Thomas. Thomas notes, though, that Smiths could see "quite significant" cash outflows if its pensions schemes' funding positions show deficits in the near future. But says it's too early to say how the pensions schemes' funding position will move in the next few years, but "one thing going against them (Smiths) is the longevity assumption (on pension members)." Keeps neutral rating. Shares closed at 1077p Tuesday. ([email protected]) 0658 GMT [Dow Jones] Barclays Capital initiates coverage of Meggitt (MGGT.LN), with an equalweight rating and a 350p price target. Says while it is positive over the potential for civil aerospace aftermarket growth, this was only 28% of '09 revenues and the 45% of revenues from defense is likely to be relatively slow growth. Says a civil aerospace upturn could be partially offset by slowing defense spending, and says this may drag on Meggitt's multiple. Says the target price implies 16% upside. Shares closed Tuesday at 308p. ([email protected]) 0655 GMT [Dow Jones] Royal Bank of Scotland initiates coverage of UK general retailers, with a cautious stance. Expects the sector to come under consumer spending, cost and margin pressure, as austerity measures dampen confidence. Starts Home Retail Group (HOME.LN) at hold with 214p price target, saying UK macro headwinds for both Argos and Homebase are negative. Start Next (NXT.LN) at hold with 1989p price target, saying that while cash flow, dividend growth and share buybacks are supportive, two consecutive years of EPS downside are likely. Starts Marks & Spencer (MKS.LN) at sell with 333p price target, citing declining returns, greater competition and a stretched balance sheet. Starts Kingfisher (KGF.LN) at buy with 208p price target, saying it's the highest-quality restructuring play within RBS's UK retail universe. ([email protected]) 0638 GMT [Dow Jones] Marks & Spencer's (MKS.LN) 1Q update reveals a good start to the new financial year, says KBC Peel Hunt. Notes like-for-like sales growth of 6% in general merchandise and 1.5% growth in food sales versus KBC's estimates of +3% and +1%, respectively. Says this is clearly a solid outcome for M&S, with market share gains in all areas of clothing. Still, KBC says its concerns for M&S stem from balance sheet constraints and lower levels of cash generation relative to its peers, such as Next (NXT.LN). Reiterates sell rating on M&S. Shares closed Tuesday at 353p. ([email protected]) 0624 GMT [Dow Jones] Marks & Spencer's (MKS.LN) 1Q update shows strong trading, says a trader. Says total UK retail like-for-like sales were up 3.6% vs consensus of +2.3%, while general merchandise sales are very strong at +6%, vs consensus of +3.7%. However, notes there is no margin comment and the outlook statement is cautious. Shares closed Tuesday at 353p. ([email protected]) 0613 GMT [Dow Jones] UBS cuts Shire Pharmaceuticals (SHP.LN) price target to 1450p from 1600p. Brokerage says although a survey suggests more upside for VPRIV, it makes no changes to its estimates as it awaits more visibility on Shire manufacturing capacity. "As the stock has lost momentum, we remove the 10% momentum premium we had added and decrease our price target." Maintains neutral rating on the stock. Shares closed Tuesday at 1386p. ([email protected]) 0612 GMT [Dow Jones] JPMorgan Cazenove downgrades International Personal Finance (IPF.LN) to underweight from neutral, citing currency headwinds. Believes the combination of weak operating currencies and higher funding costs will reduce consensus estimates, and investor sentiment will continue to be influenced by macroeconomic concerns. As a result, reckons the stock will underperform the sector. Still, says the stock's rating does not reflect the medium-term growth potential in the markets in which it operates. Adds the dividend remains well covered and expects modest growth at the interim stage. Shares closed Tuesday at 205p. ([email protected]) 0612 GMT [Dow Jones] UBS raises Homeserve (HSV.LN) price target to 2080p from 1900p. Says while 1H typically has a seasonally lower proportion of profits, there is significant underlying activity in the business. Notes new customer growth initiatives in the UK, the development of the Agbar partnership in Spain, the new presence in Italy, the closure/development of the National Grid acquisition, and the two new large affinity partnerships in the USA. Says strong relative performance during the market correction since mid-April has been underpinned by the positive international developments. However, given the recent strong share price performance, keeps at neutral. Shares closed Tuesday at 2076p. ([email protected]) Contact us in London. +44-20-7842-9288 [email protected] (END) Dow Jones Newswires July 07, 2010 04:20 ET (08:20 GMT)