Broker tips: IG Group, Mothercare, Business service stocks

29th Nov 2011 12:58

Prime Markets recommends buying shares in IG Group, saying that the European sovereign debt crisis creates "ideal conditions" for the spread-betting firm.The group said this morning that it has continued to see high levels of client activity during its second quarter and first half revenues will be 23% higher than last year."With market moving sovereign debt news items an almost daily occurrence, IG Group should be able to sustain the current levels of revenue growth, and in the run up to the next trading statement on 13 December, Prime Markets believes that near perfect conditions exist for a retest of October 475p highs in the run up to the Dec trading statement," said head of dealing at Prime Markets, Richard Curr.UBS has downgraded its rating on children's and parenting products retailer Mothercare from neutral to sell and slashed its target price by over three quarter after assessing the group's first half results published two weeks ago."Management is reviewing the size and scope of the UK business, announcing its conclusions in early 2012. We expect the market to remain competitive and only cost savings will prevent the UK loss from increasing," UBS said. While the broker believes that ongoing international store growth will continue, international LFL sales are expected to "deteriorate".UBS cuts its full-year pre-tax profit forecast from £27.5m to just £2.5m due to the weak first half results "and assuming that subdued trading conditions persevere in the UK".The price target comes down from 420p to 100p. Credit Suisse has reassessed its ratings and forecasts across the business services sector to reflect a more challenging environment in which it envisages Europe falling back into a recession in the fourth quarter.The broker said: "Our base case FY12-13 EPS estimates fall by an average of 4-5% to reflect a recession in Europe and continued growth in the US and RoW [Rest of World]. We have made a broad range of changes with essentially limited cuts to relatively non-cyclical businesses with little or no European exposure, and larger reductions for European focused cyclicals.""We continue to prefer the outsourcing sector (Capita, Serco, MITIE - upgraded to outperform, Carillion) where stocks have limited European exposure, below average cyclicality and are trading at attractive multiples with positive catalysts approaching." Furthermore, the broker says that growth will continue at Intertek, Experian and Aggreko, albeit at a slower rate. These stocks are also given an outperform rating.Unsurprisingly given the bearish outlook for the European economy, Credit Suisse stays cautious on businesses with high levels of exposure to the region. The broker keeps its underperform rating on Michael Page, saying that trading is "vulnerable to weakening economic conditions".BC