Broker tips: Construction stocks, Morrison, ARM Holdings

8th Jan 2013 13:09

Analysts at Deutsche Bank have today delivered a glowing review of the prospects for the UK's homebuilders, in turn raising their price targets on all of the companies within their universe. Thus, they explain that, "through 2012 the UK house builder sector re-rated, moving from 0.69 times 2012 Net Tangible Asset Value (NTAV) to 1.0 times 2013 NTAV. However, as the sector reaches returns that cover its cost of capital in 2013, moving to mid teen levels by 2014/2015, we believe a further rerating is available. A sector creating mid teen return on capital employed (ROCE) on a sustainable basis (the upside being based on self-help measures rather than any housing market pick-up) we believe deserves to trade at a 20% premium to its NTAV (mid-range of its 2000-2005 valuation range)." Its analysts have raised their price target on Barratt Developments to 278p (from 224p), on Bovis to 667p (from 599p) and on Berkeley Group to 1,941 (from 1,925). Swiss broker Credit Suisse has today updated its forecasts for chip maker ARM Holdings so as to reflect the changes made to its forecasts for the handset industry in 2013. More specifically, analyst Kulbinder Garcha has raised his smartphone market volume estimates by 6%/15% and tablet estimates by 5%/13% for 2012/13. Ironically enough, growth in emerging markets is set to drive chip set prices - and the resulting royalties for ARM - lower by 2% per year. Thus, for example, the sub-$200 smartphone category is expected to grow from 19% of global volumes to 43% from 2012 to 2015, as emerging markets power smartphone growth and represent 70% of annual shipments by 2017. Even so, royalties per smart phone are still expected to grow at a 1.6% per cent compound annual rate through 2017 as customers license more expensive IP that commands higher royalty rates, as well as take-up more Mali graphics. As well, high-end networking could become more material. Due to all of the above Credit Suisse raises its target to 780p from 645p before, even though it maintains its recommendation at hold.Morrison did not warn as some feared. That said, we think the company remains cautious, and we are adopting a similar tone with both our estimates and target price, analysts at Credit Suisse wrote on Tuesday. Weak Christmas/New Year ex-fuel like-for-like (LFL) sales of -2.5% was disappointing although not unexpected, they add.Thus the key is now whether the company will be successful in its stated goals of promoting innovation and communicating better its key points of difference, with a new advertising campaign to be launched in February. The Swiss broker's target price falls from 280p to 265p, in-line with the above revisions, although the recommendation on the grocer's shares remains neutral. AB