Broker tips: Utilities, Mitchells & Butlers, Ricardo

26th Nov 2009 12:42

On the day when Ofwat, the water regulator, released its final ruling on pricing restrictions for the water companies, Morgan Stanley has issued a timely review of the utilities sector.Two of Thursday morning's best performing stocks, Severn Trent and United Utilities, are named as Morgan Stanley's least preferred stocks in the sector, while its top pick among UK stocks is National Grid.The US bank is concerned over enduring weakness in power and gas prices. 'If the steep power price flattens in the medium term, which we think it will, we see further downside to 2011 earnings. We think it plausible rating agencies could adopt a tougher approach, especially if power prices fall,' Morgan Stanley said.Full year results from cash strapped pubs group Mitchells & Butlers have rnot been enough to provoke KBC Peel Hunt or Panmure Gordon into revising their neutral positions on the stock.Panmure Gordon expects profit before tax estimates for the current financial year to move up to around £139m from the current consensus of £134m, 'driven by a slight increase in EBIT [earnings before interest and tax] to c£300m and an interest charge of £161m based on the group's guidance of a 6.2% average cost of debt.'KBC Peel Hunt, however, has said it will be leaving its forecast unchanged at £135m.Both brokers rate the stock no more than a 'hold'. KBC has a target price of 270p while Panmure has a 12-month price target of 295p.As a leading provider of innovative engineering solutions Ricardo is well placed to benefit from the decarbonisation of the world's energy systems, reckons Charles Stanley.The broker has reiterated its 'buy' recommendation and upped its price target from 260p to 315p following last Thursday's interim management statement from Ricardo, which 'confirmed stabilisation in a number of core markets and clear signs of increasing sales interest, particularly in the Asian regions.''The group has the opportunity to deliver premium rates of growth over the medium to longer term both from its traditional automotive markets and also from allied sectors where there is the potential for revenues of £30m each,' the broker concludes.