Broker tips: UK grocers, Whitbread, Synthomer...

8th Apr 2014 12:23

The outlook for profits across the UK grocery sector is 'highly constrained', according to Shore Capital, which has raised concerns about rising pricing contagion. The broker retained its 'sell' ratings for supermarket rivals Tesco and WM Morrison and online grocer Ocado."We have harboured growing concerns about the scope for price cutting to gain ground in recent months, so potentially debilitating supermarkets' gross margins in what are demonstrably weak markets in terms of demand in the UK," said analysts Clive Black and Darren Shirley.Costa, Premier Inn and restaurant owner Whitbread should be a 'buy' ahead of its full-year results, according to Galvan Research and Trading."Costa in particular is benefitting from the UK's apparently insatiable appetite for coffee shops, and with a clear strategy for growth providing plenty of visibility, Galvan Research believe that the current dip in the share price warrants an investor alert call to pick the stock up in the run up to the full-year results at the end of the month."Chemicals business Synthomer was trading firmly lower on Tuesday morning after JPMorgan Cazenove downgraded its rating on the stock from 'neutral' to 'underweight' after an "impressive" run over the last 12 months."We believe a combination of increasing competition, pricing pressure, heavy emerging market exposure and currencies will lead to downgrades in 2014," JPMorgan said.UBS has lowered its recommendation for pharmaceuticals group Hikma from 'buy' to 'neutral' on valuation grounds, saying that it is "time to take a pause and breathe" after the stock's recent performance."As the stock trades near our price target [1,700p] and as we see no reason in the short-term to increase our expectations, we feel the stock could be range bound and therefore downgrade to 'neutral'," the bank said.Investec has retained its 'sell' rating for South Africa platinum group metals (PGM) producer Lonmin and cut its target price from 278p to 258p, saying that ongoing strikes at the company's mines continue to undermine value.The broker said that it assumes the loss of a whole quarter of output for Lonmin and now expects the company to produce 614,000 ounces, down from a previous forecast of 786,000. It also said that the company could incur a $180m exceptional charge. However, it admitted that quantifying the strike's impact is "challenging with no end in sight".BC