Broker tips: Standard Chartered, Cairn, Rotork

3rd Mar 2011 13:10

Nomura has upgraded its recommendation for Asia-focused bank Standard Chartered following the lender's confident reiteration of a target of double-digit revenue growth in 2011.The broker ups the rating to 'neutral', from 'reduce', but queries the profitability of Standard Chartered's growth and the potential impact of policy tightening in emerging markets "which may result in weaker revenue growth in Wholesale markets and/or a rise in impairments," says analyst Raul Sinha."We are willing to value Standard Chartered's earnings at a multiple of 14 times (a premium to local peers'). However we are wary of basing valuations on the currently low level of impairments, especially given the outlook for higher inflation and interest rates in a number of the group's markets," adds Sinha.The target price is raised from 1,690p to 1,770p.UBS raises the target price for Cairn Energy, as confidence improves in the oil producer's Greenland prospects, while the sale of its Indian unit moves closer.The target price is raised by 25p as the broker thinks that the shares are reflecting some hope of early summer mobilisation and drilling in Greenland.However, "it is our view that Cairn's drilling campaign in Greenland will likely prove more difficult than originally expected, with potentially deeper water drilling required," says UBS.Meanwhile, press articles on Wednesday suggest that the Indian cabinet is closer to a resolution of the Cairn sale of a 40-51% stake in Cairn India to Vedanta.While a 'neutral' rating is kept, the broker raises the target price to 440p, from 415p, as it expects the shares could trade higher on what it views as a momentum trade.Credit Suisse cuts the target price for engineering firm Rotork, saying earnings margins aren't as good as its sector peers.Following the group's 2010 results reported earlier in the week, the broker reduces its 2011 underlying pre-tax profit forecasts by 2%, but increases 2012 estimates by 1%.The second half earnings before interest, tax and amortisation (EBITA) margin of 26% was down 30 basis points (bp) sequentially, and 120bp year-on-year."While increasing divisional utilisation rates should help to offset the increase in overhead seen in 2010 and is aided by rising profitability levels at Process Controls [electric valve actuators manufacturing division] and Ralph A. Hiller [nuclear actuators manufacturer], we are at this juncture taking a more cautious stance on the Rotork EBITA margin expansion story," says analyst J Hurn.The target price is cut to 1,705p, from 1,830p, while a 'neutral' stance is maintained.