UK MARKET TALK ROUNDUP: BROKERS COMMENTS

15th Jun 2010 13:46

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] 1246 GMT [Dow Jones] Evolution Securities Tuesday took a cautious stance on the recovery of Wellstream (WSM.LN), Hunting (HTG.LN) and John Wood Group (WG.LN), warning they may be vulnerable to potential downgrades for 2H '10 and, more significantly, 2011, because of their offshore service operations, high operational gearing, asset heavy portfolios and well-bore related businesses. Evo also said the Macondo blowout is likely to affect adversely the oil service industry. Evo downgrades them all: to neutral from add for Wellstream, cutting the target price to 600p from 700p; to add from buy on Hunting with a 600p target price cut from 700p, and to neutral from add on Wood Group with a 400p target price cut from 450p. ([email protected]) 1141 GMT [Dow Jones] BP (BP.LN) remains well-placed, both operationally and financially, to deal with the Macondo spill, says Citigroup. It says the stock price will likely continue to whip-saw on speculation until the company can kill the leak, clean-up the damage and give more certainty around the costs. But Citi still thinks the stock price is discounting pessimistic cost outcomes rather than the most likely outcomes. Additionally, Citi says a clean break by the US side from the rest of BP's business, if considered, would not be a simple option. Buy rating, 590p target. Shares +0.2% at 356p.([email protected]) 1108 GMT [Dow Jones] Tesco's (TSCO.LN) 1Q trading update is soft, but in-line, says S&P Equity Research. It notes group sales growth of 8.2% year-on-year, in line with S&P Equity's forecast, driven by a solid international performance, including 37.8% growth in the US. S&P Equity says 1Q like-for-like sales growth of 0.1% ex-VAT was not a surprise for the market. Similarly, S&P expects soft numbers from rivals, such as Sainsbury (SBRY.LN), which is due to report Wednesday. S&P Equity remains confident in Tesco's business model and says the valuation is still compelling. Buy rating, 500p target. Shares +1.9% at 399p. ([email protected]) 0951 GMT [Dow Jones] Collins Stewart downgrades Connaught (CNT.LN) to hold from buy. Says the stock is now within 10% of its 350p target price and concerns over sentiment alongside a lack of obvious catalysts prompts the brokerage to downgrade the rating. "Although we do not think the Emergency Budget scheduled on the June 22 poses a material risk to earnings, we are concerned about the impact it could have on market sentiment given public sector exposure," it adds. Shares +0.5% at 331p. ([email protected]) 0854 GMT [Dow Jones] Seymour Pierce upgrades Ted Baker (TBK.LN) to buy from hold following the company's positive trading update. Seymour notes sales in the 19 weeks to 12 June were up 18% versus the brokerage's forecast for a 12% increase. "The company has great potential to develop the brand overseas and expand its internet activities and we believe it is undervalued relative to peers." Shares flat at [email protected]) 0849 GMT [Dow Jones] Bank of America Merrill Lynch downgrades Inmarsat (ISAT.LN) to underperform from neutral and cuts the target price to 725p from 800p. BofA Merrill says a big capex surprise looks likely. "We are concerned by a number of operational issues, though our primary concern is that Inmarsat could announce a large fleet expansion in order drive top-line revenue and fight-off competition from the Fixed Satellite Service operators." BofA Merrill adds that shareholders could be hit for up to $1B to fund new Ka-band satellites. Shares -4.8% at 782p. ([email protected]) 0743 GMT [Dow Jones] British Sky Broadcasting (BSY.LN) shares are +19% at 714p, after it says the bid from News Corporation (NWS) of 700p per share significantly undervalues the company. Sky says it would be prepared to support a bid in excess of 800p. "The bottom line is that independent directors want 800p," notes Singer Capital Markets. News Corp is seeking to buy the remaining 61% stake of BSkyB, thus deploying its $8.2B in cash reserves, says Singer. "It seems to be a question of longer- term value for News Corp. Sky comes at premium, it's in a third of UK homes, which makes it a powerhouse. This all suggests that Sky shareholders will only really settle for a bid in excess of 800p." News Corp, parent company of Dow Jones Newswires, has a stake of about 39% in BSkyB. ([email protected]) 0725 GMT [Dow Jones] News Corp's (NWS) 700p per share offer for the 61% stake it doesn't already own in British Sky Broadcasting Group (BSY.LN) undervalues the company, says a trader. "They are having a laugh," he says, adding that it's unreasonable that News Corp thinks it can buy the shares at the given price after all the investments that have been made in the company. News Corp, parent company of Dow Jones Newswires, has a stake of about 39% in BSkyB. BSkyB shares +19% at 716p. ([email protected]) 0719 GMT [Dow Jones] Tesco's (TSCO.LN) first-quarter trading update is a mixed bag, says Richard Hunter, Head of UK Equities at Hargreaves Lansdown Stockbrokers, following on from a solid if unexciting set of full year figures two months ago. Says Asian sales are strong, but U.K. sales are flat. "Coupled with weakening demand and easing food inflation, Tesco is struggling to make the kind of headway to which the market has become accustomed," he says. Says the update is unlikely to lead to upgrades. Shares -0.5% at 390p. ([email protected]) 0710 GMT [Dow Jones] The retirement of HSBC Holdings' (HBC) North American CEO Brendan McDonagh sends a "very strong signal" that the US consumer finance business is now firmly under control, says Oriel Securities analyst Mike Trippitt. Trippitt says McDonagh's replacement, Niall Booker, is a strong, logical choice, who will likely focus on growing the core US banking business. Keeps buy rating and 730p target. Shares -0.9% at 645p. ([email protected]) 0659 GMT [Dow Jones] Tesco's (TSCO.LN) 1Q like-for-like sales growth of 0.1% ex-VAT are a tad disappointing, but expectations were pretty low, given the moves in petrol and food prices, says Arden Partners analyst Nick Bubb. Notes international sales are solid enough, and says "the detailed and honest statement should get a few brownie points." Adds he will need to see Sainsbury's (SBRY.LN) 1Q tomorrow to put things in context, but in principle would be a buyer of Tesco at these levels. Shares closed Monday at 392p. ([email protected]) 0654 GMT [Dow Jones] Tesco's (TSCO.LN) 1Q update is broadly in line with expectations, if anything a little toward the top end of expectations, says Shore Capital. It notes like-for-like sales are broadly flat, a result Shore is relaxed about, with Europe slightly positive and Asia slightly negative. Shore says the one market it is concerned about internationally is Hungary, but it notes overall the outlook appears to be brightening. With strong sustainable growth anticipated, succession sorted out, debt falling and returns rising. Buy rating. Shares closed Monday at 392p. ([email protected]) Contact us in London. +44-20-7842-9288 [email protected] (END) Dow Jones Newswires June 15, 2010 08:46 ET (12:46 GMT)