Broker tips: Vodafone, Compass, Housebuilders

24th Jul 2009 11:55

Friday's quarterly trading update from telecoms giant Vodafone contained nothing worrying enough to persuade Morgan Stanley to changes its favourable stance on the stock.The US bank has maintained its "overweight" recommendation for Vodafone, saying the "valuation thesis remains compelling.""Underlying prospective PE is 6x ex-all goodwill/licences - and even including some ongoing licence costs, we think it is unlikely the PE would rise significantly above 7x," Morgan Stanley said.Fellow US bank Citigroup said the results were "better than almost anyone expected."Organic group service revenue fell 2.1% versus a consensus prediction of a 2.2% decline, while Europe's revenue contracted by just 4.4% versus Citi's expectations of a 5.15 decline.Citi has reiterated its "buy" recommendation and 180p share price target. Swiss bank UBS is mystified by the adverse reaction to yesterday's trading statement from catering group Compass, and reckons fears over revenue growth are misplaced.Echoing a view expressed yesterday by broker Charles Stanley, UBS believes that margin improvement will enable Compass to hit its profit targets. ""Given the progression of the margin story, we believe share price reaction on July 23 (down 7%) is over done, we are not changing forecasts and re-iterate our Outperform rating," UBS said.The bank has a price target of 435p for the stock. KBC Peel Hunt, a long time bear on the housebuilding sector, is once again exhorting its clients to take profits on the housebuilders in the wake of what it regards as "a positive spin" put on housing market figures by property web site Rightmove."Rightmove has hailed the bottom of the housing market, citing a 20% rise in new sellers as evidence. A rise in new sellers in fact has the opposite effect, correcting the buyer imbalance now driving the market," KBC's Robin Hardy argues.Turning to specific stocks, KBC believes that the recent advance by Barratt Developments - up almost 15% over the last week - probably makes a large cash call more likely, with the broker guessing that the company would tap the market for around £500m. With or without an equity issue, KBC believes Barratt's valuation is "stretched on an NAV [net asset value] or EPS [earnings per share] basis."The broker concedes that bulls are driving the share price direction of housebuilders at the moment but claims "the false dawn is coming to an end; a negative tone is set to return but not just yet."Investors dedicated to maintaining exposure to the sector are advised to switch into "less exposed stocks such as Bellway, weaker performers such as Taylor Wimpey or stocks allied to transactions such as Travis Perkins."