Broker tips: BP, Sage, Pearson

28th Jul 2009 13:04

BP produced better than expected second quarter headline numbers but Panmure Gordon remains a seller, saying that the underlying numbers appear to be merely in line with market expectations."Overall, the operating divisions' aggregate earnings were in line with expectations. However, the company benefitted from a consolidation adjustment benefit of $76m compared to our forecast of a loss of $200m. The group also benefitted from a better taxation rate, which was 35% compared to our forecast of 37%," the broker notes."We believe that the operating environment will continue to depress the shares and we maintain our Sell recommendation," the broker concludes.Accountancy software giant Sage was the best performing FTSE stock on Tuesday morning though the rise appears to have been spurred by relief that the results were not worse than expectations.Broker Evolution Securities was reassured by the trading update and has raised its rating from "sell" to "neutral" and upped its price target from 120p to 168p.Deutsche Bank, meanwhile, remains bullish on the stock, saying it "represents an attractive mix of defensive qualities coupled with some operational leverage in macro-recovery on the back of recent cost-saving actions".KBC Peel Hunt begs to differ. "Q3 has seen no change to the trend of downward pressure on licence income. Margins for now are being maintained through cost savings. We continue to see Sage as a late cycle stock and are wary of the risk that the current trend intensifies," said KBC analyst Simon Strong. KBC rates the shares as a "sell" and has a price target of 140p. It has left its full-year profit before tax forecast for this year unchanged at £226m.The strong performance in Pearson's shares yesterday after its results was largely due to the company maintaining full-year guidance, despite currency headwinds, Nomura believes.Assuming unchanged exchange rates, 2010 earnings will face a US dollar headwind of about 5%, Nomura predicts, which would make flat earnings a good result."Flat EPS in 2009 implies an underlying decline of around 10%, however, and although this can partly be explained by phasing in the US school curriculum business, it also reflects difficult trading in the FT Group and Penguin," the broker assets.Assuming the company avoids earnings deterioration this year the shares are currently trading on a multiple of almost 12 times 2010 earnings, which Nomura thinks looks reasonable for now. "If further worsening in end markets threaten the 2010 forecast, however, the shares will be vulnerable again, and we retain our reduce recommendation," analyst Colin Tennant said.